Economics Study Guide: Chapters 1 + 2

Vocabulary flashcards covering the key concepts from Chapters $$1$$ and $$2$$ of the Economics study guide, focusing on fundamental principles, trade, and comparative advantage.

Incentives

Rewards or penalties that influence people's decisions and behavior.

Self-interest

Acting to benefit yourself.

Social interest

What benefits society as a whole.

Invisible Hand

Adam Smith's idea that people pursuing their own interests can unintentionally benefit society.

Trade-Offs

Gaining one thing by giving up something else because resources are limited.

Scarcity

The condition where limited resources force individuals, businesses, and governments to make choices.

Opportunity Cost

The value of the next best alternative that is given up when making a choice.

Marginal Benefit

The additional benefit received from $1$ more unit of an activity.

Marginal Cost

The additional cost incurred from $1$ more unit of an activity.

Specialization

Focusing on producing a limited number of goods or services to become more efficient.

Comparative Advantage

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

Economic Growth

An increase in a country's ability to produce goods and services, leading to higher living standards.

Inflation

A sustained increase in the general level of prices that reduces purchasing power.

Federal Reserve (Fed)

The central bank that manages the money supply and attempts to promote stable prices, low unemployment, and economic growth.

Absolute Advantage

The ability to produce the same good using fewer resources or inputs than another producer.

Production Possibilities Frontier (PPF)

A graph showing every possible combination of $2$ goods that can be produced using available resources efficiently.

Division of Knowledge

A system where different people become experts in different fields and combine their expertise through trade.

Globalization

The increasing economic connection of countries through trade, communication, technology, and the exchange of ideas.