Principles of Micro Economics: Interdependence and the Gains from Trade

These flashcards cover key vocabulary and concepts from Mankiw's lecture on microeconomics related to trade and interdependence.

Interdependence

The reliance of two or more parties on each other in economic activity.

Gains from Trade

The benefits that occur when parties engage in trade, allowing each to specialize and improve economic outcomes.

Production Possibilities Frontier (PPF)

A curve that depicts all possible outputs of two goods that can be produced given a fixed amount of resources.

Absolute Advantage

The ability of a producer to produce more of a good with the same amount of resources than another producer.

Comparative Advantage

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

Opportunity Cost

The cost of forgoing the next best alternative when making a decision.

Specialization

The process by which individuals or businesses focus on a limited scope of production to gain efficiency.

Cattle Rancher

A farmer who raises cattle, typically for meat production.

Potato Farmer

A farmer who specializes in growing and harvesting potatoes.

Trade

The act of buying and selling goods and services between parties.

Economic Pie

A metaphorical representation of the total economic output or wealth of an economy.

Consumers

Individuals or entities that purchase goods and services for personal use.

Resource Allocation

The distribution of resources among various projects or business units.

Consumer Preferences

The subjective tastes and preferences that dictate the choices made by consumers.

Market Efficiency

A situation in which markets allocate resources in a way that maximizes total surplus.

Output Mix

The various combinations of goods and services produced by an economy.

Economic Specialization

The process in which economic agents concentrate on producing a limited range of goods.

Bargaining Range

The range of possible agreements between two parties in a negotiation.

Incentive Structures

System of rewards and penalties designed to encourage or discourage behaviors.

Consumption Possibilities Frontier (CPF)

Represents the maximum possible consumption of goods given production capabilities.

Marginal Benefit

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

Marginal Cost

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

Economies of Scale

The cost advantage experienced by a firm when it increases its level of output.

Market Equilibrium

A state in which market supply and demand balance each other.

Resource Scarcity

The fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.

Trade-off

The concept of giving up one benefit in order to gain another.

Internal Trade

Trade that takes place within a country.

International Trade

Trade between nations.

Price Mechanism

The way prices rise and fall to reflect changes in supply and demand.

Supply and Demand

Economic model that determines the price in a market.

Price Elasticity

A measure of how much the quantity demanded or supplied of a good responds to changes in price.

Market Failure

A situation in which the allocation of goods and services by a free market is not efficient.

Economic Surplus

The total benefit to society from producing and consuming a good.

Net Benefit

The total benefit minus the costs associated with an action or transaction.

Welfare Economics

A branch of economics that focuses on the optimal allocation of resources and goods to improve social welfare.

Competitive Market

A market structure characterized by a large number of buyers and sellers.