Lecture Unit 1 — Economics as a Way of Thinking

Vocabulary flashcards covering core microeconomics concepts, cost definitions, economic modeling terms, and trade concepts from Unit 1.

Scarcity

A situation in which the resources available (time, money, land, attention) are not sufficient to satisfy all the uses to which they could be put.

Opportunity cost

The value of the best foregone alternative that is given up by making a choice, evaluated net of what it would have cost.

Sunk cost

A cost that has already been paid and cannot be recovered (such as a $60\text{ GEL}$ non-refundable ticket), which should not affect forward-looking choices.

Explicit cost

A direct monetary payment or outlay required when making a choice involving spending money.

Implicit cost

The non-monetary value or foregone earnings of resources already owned that are used when making a choice.

Marginal reasoning

A principle of decision-making stating that an individual should continue an activity as long as its marginal benefit exceeds its marginal cost.

Economic model

A deliberately simplified framework used to reason about choices and understand complicated economic behavior.

Ceteris paribus

A Latin phrase meaning 'all other things being equal', used in economic reasoning to isolate the effect of a single variable while holding other conditions constant.

Exogenous variable

A variable in an economic model whose value is taken as given and determined outside of the model.

Endogenous variable

A variable in an economic model whose value is explained or determined within the model.

Equilibrium

A situation in an economic setting where opposing forces are balanced, such that no participant has an incentive to alter their behavior.

Production possibility frontier (PPF)

A representation constructed from productivity data showing maximum attainable production combinations, where the opportunity cost is reflected in its slope.

Absolute advantage

The ability of an economic agent or country to produce more of a good or crop per hour than another producer.

Comparative advantage

The ability of an economic agent or country to produce a good at a lower opportunity cost than another producer.

Ferraro and Taylor (2005)

A study presenting an opportunity cost puzzle to $199$ professional economists, finding that only $21.6\text{ percent}$ gave the correct answer under standard economic conventions.

Potter and Sanders (2012)

A study arguing that several 'wrong' answers in the Ferraro and Taylor ($2005$) study were defensible under alternative accounting conventions.