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Economics
Study of decision-making in scarcity.
Scarcity
Finite resources versus infinite wants.
Microeconomics
Focus on individual and firm decision-making.
Macroeconomics
Analysis of the economy as a whole.
Opportunity Cost
Cost of the next best alternative forgone.
Rational Decision Making
Decisions based on marginal analysis and objectives.
Marginal Cost
Additional cost from a decision made.
Marginal Benefit
Additional benefit gained from a decision.
Incentives
Factors that motivate individuals' economic behavior.
Benefits of Trade
Specialization increases consumption and efficiency.
Market Economy
Decisions made through individual choices, not planning.
Central Planning
Government organization of economic activity.
Market Failures
Inefficiencies leading to over or underproduction.
Economic Models
Simplified representations of complex economic behaviors.
Circular Flow Diagram
Models economy with firms and households interactions.
Production Possibility Frontier (PPF)
Curve showing efficient production combinations of goods.
Negative Slope of PPF
Indicates opportunity cost in production choices.
Bowed Outward PPF
Reflects increasing opportunity costs in production.
Economic Growth
Shifts PPF right due to more resources.
Comparative Advantage
Specialization based on lowest opportunity cost.
Absolute Advantage
Ability to produce more with the same resources.
Opportunity Costs in Trade
Calculating costs to determine specialization advantages.
Trade Between Cities
Maximizing output through specialization and trade.
Conclusion on Specialization
Enhances resource allocation and collective output.
