unit 2 macro test

Scarcity - The basic economic problem: unlimited wants but limited resources, forcing choices.

Self-Interest - Acting to maximize your own net benefit when making decisions.

Opportunity Cost - The value of the next best alternative given up when making a choice.

Margin - The "edge" of a decision; marginal analysis looks at the added cost/benefit of one more unit.

Sunk Cost - A cost already incurred that cannot be recovered and should not affect future decisions.

Positive Economics - Objective analysis of costs and benefits without value judgments.

Normative Economics - Analysis that includes opinions about what should be done.

Production Possibilities Frontier (PPF) - A graph showing the max combinations of two goods an economy can efficiently produce with given resources.

Efficient Point - A point on the PPF representing full and efficient use of available resources.

Inefficient Point - A point inside the PPF representing underused or inefficient use of resources.

Unattainable Point - A point outside the PPF that cannot currently be produced with existing resources.

Outward Shift of the PPF - Economic growth caused by more/better resources or improved technology.

Inward Shift of the PPF - A loss of productive capacity caused by resource loss.

Law of Increasing Opportunity Cost - As more of a good is produced, the opportunity cost of producing additional units increases.

Absolute Advantage - The ability to produce a good using fewer resources than another producer.

Comparative Advantage - The ability to produce a good at a lower opportunity cost than another producer.

Specialization - Focusing production on the good(s) one has a comparative advantage in, then trading for other goods.

Gains from Trade - The extra total output available to both parties when trade is based on comparative advantage.

David Ricardo - The economist credited with originating the theory of comparative advantage.

Demand - The relationship between price and quantity buyers are willing/able to purchase.

Law of Demand - As price increases, quantity demanded decreases, ceteris paribus.

Change in Quantity Demanded - A movement along the demand curve caused by a change in the good's own price.

Change in Demand - A shift of the entire demand curve caused by a non-price factor.

Price Elasticity of Demand - A measure of how responsive quantity demanded is to a price change.

Supply - The relationship between price and quantity sellers are willing/able to offer.

Law of Supply - As price increases, quantity supplied increases, ceteris paribus.

Change in Quantity Supplied - A movement along the supply curve caused by a change in the good's own price.

Change in Supply - A shift of the entire supply curve caused by a non-price factor.

Price Elasticity of Supply - A measure of how responsive quantity supplied is to a price change.

Equilibrium - The price/quantity where quantity demanded equals quantity supplied.

Equilibrium Price - The price at which quantity demanded equals quantity supplied.

Equilibrium Quantity - The quantity bought and sold at the equilibrium price.

Price Ceiling - A legal maximum price; if set below equilibrium, causes a shortage.

Price Floor - A legal minimum price; if set above equilibrium, causes a surplus.

Shortage - When quantity demanded exceeds quantity supplied.

Surplus - When quantity supplied exceeds quantity demanded.

Binding Price Control - A price ceiling or floor that falls above/below equilibrium and therefore affects the market.