Key Concepts in Economics and Comparative Advantage

Vocabulary flashcards covering key concepts and terms in economics and comparative advantage.

Economics

The study of choice under scarcity, focusing on how to satisfy unlimited needs and wants with limited resources.

Scarcity

The limited availability of resources to meet unlimited wants and needs.

Opportunity Cost

The next best alternative foregone due to scarcity, including both explicit and implicit costs.

Marginal Analysis

A tool used by economists to examine decisions at the margin, comparing marginal benefits to marginal costs.

Ceteris Paribus

A Latin phrase meaning 'all other things being equal,' used to isolate the effect of one variable.

Production Possibility Frontier (PPF)

A graph that shows all possible combinations of goods and services that an economy can produce given its resources.

Marginal Benefit

The additional benefit received from consuming one more unit of a good or service.

Marginal Cost

The additional cost incurred from producing one more unit of a good or service.

Gains from Exchange

Improvements in income, production, or satisfaction resulting from the exchange of goods or services.

Comparative Advantage

The ability of an individual or group to carry out a particular economic activity at a lower opportunity cost than another.

Absolute Advantage

The ability of a party to produce a greater quantity of a good or service than another party using the same amount of resources.

Pareto Improvement

A situation where at least one agent is better off without making another agent worse off.

Correlation

An association between two or more factors where they are observed to increase or decrease together.

Causation

The relationship where a change in one variable causes a change in another variable.

Decision Making

The process of making choices by considering the marginal benefits and costs.

Economic Interaction

The exchange of goods and services that facilitates trade and allows specialisation.

Sunk Costs

Costs that have already been incurred and cannot be recovered, not included in opportunity costs.

Trade Specialisation

The process where individuals or countries focus on producing goods for which they have a comparative advantage.

Output Allocation

The distribution of production resources among various goods and services to satisfy consumer needs.

Market Economy

An economic system where decisions on production and consumption are driven by supply and demand.