TMFQ

Guns and Butter Trade Off

Represents the choice between spending on military (guns) versus consumer goods (butter); more spending on guns means less social goods.

Efficiency

Achieving the maximum output from resources; society gets the most from its resources.

Equality

Equal distribution of resources; for instance, taxes taken from the rich and given to the poor.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision; e.g., spending $10 on a movie ticket vs. lunch.

Incentive

A factor that motivates someone to act a certain way; e.g., jail time for drinking and driving.

Specialization

The focus on producing particular goods for increased efficiency and better pricing.

Law of Increasing Opportunity Cost

As production of one good increases, the opportunity cost of producing an additional unit rises.

Factor Payment

Payments made to individuals or businesses for the use of their resources, e.g., wages.

Transfer Payment

Payments made by the government to individuals without any exchange of goods/services, e.g., social security.

Microeconomics

The study of individual economic units or markets, such as households and firms.

Macroeconomics

The study of the economy as a whole, including issues like inflation and unemployment.

Absolute Advantage

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

Comparative Advantage

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

Law of Demand

States that as the price of a good decreases, demand for it increases, and vice versa.

Elastic Demand

Demand is highly responsive to price changes (elasticity coefficient > 1).

Inelastic Demand

Demand changes very little in response to price changes (elasticity coefficient < 1).

Equilibrium Price

The price at which the quantity supplied equals the quantity demanded.

Surplus

Occurs when the supply of a product exceeds the demand at a certain price.

Shortage

Occurs when the demand for a product exceeds the supply at a certain price.

Shifters of Supply Curve

Factors that can cause the entire supply curve to shift, such as input prices, technology, and number of suppliers.

Demand Schedule

A table that shows how many goods consumers are willing to purchase at different prices.

Demand Curve

A graph representing the relationship between the price of a good and the quantity demanded.