Economics Fundamentals SBIT #2

Tradeoff

the alternative people give up when they make choices

Opportunity Cost

the value of the next best thing (tradeoff) that you are giving up, monetary or non-monetary

Incentive

something that motivates you to do something

Positive Incentive

you do something to get benefits/rewards

Negative Incentive

you do something to avoid an extra cost/penalty

Marginal

additional

Marginal analysis

choosing options that have more marginal benefit that marginal cost

Law of diminishing marginal utility

as a person increases consumption of a product, there is a decline in the marginal utility (usefulness) that a person gets from consuming each additional unit of that product

Production Possibilities Curve (PPC)

an economic model showing production tradeoffs

Efficiency

using all of the available resources in production

Inefficiency

not using all of your resources in production

Impossibility

trying to use more than the available amount of resources in production

Reason for PPC shift left

more expensive labor or resources

Reason for PPC shift right

cheaper labor or resources, found better way to produce

Productivity

the ability to produce greater quantities of goods and services in better and faster ways

includes the ratio of input that you turn into output

Division of labor

the breaking down of a job into small tasks

each tasks may be performed by a different worker

Specialization

individuals focus on the job they are best at

Capital investment

buying better technology, machinery, or materials to improve production

Human capital investment

improving one’s education/training (ex. going back to school, taking training courses, etc.)

Standard of living

the degree of wealth and material comfort available to a person or community

the wealthier a nation is, the higher the standard of living