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Scarcity
The fundamental economic problem of having unlimited wants but limited resources.
Opportunity Cost
The best NEXT item that you could have gotten instead of the chosen item.
Trade-Offs
All of the other things you could have chosen instead of the selected item.
Factors of Production
The resources used to produce goods and services, including land, capital, labor, and entrepreneurs.
Production Possibilities Curve (PPC)
A graph that illustrates how economies allocate resources and make decisions about trade-offs and opportunity costs.
Economic Growth
Occurs when a nation’s total output of goods and services increases over time.
Traditional Economy
An economic system in which decisions are based on customs and traditions.
Market Economy
An economic system based on supply and demand with little government intervention.
Command Economy
An economic system where the government makes all economic decisions.
Mixed Economy
An economic system that incorporates elements of both market and command economies.
Diminishing Marginal Utility
The decrease in satisfaction or usefulness from having one more unit of the same product.
Law of Demand
When the price goes up, quantity demanded goes down, and vice versa.
Change in Quantity Demanded
Movement along the demand curve due to a change in price.
Change in Demand
A shift of the demand curve due to changes in factors other than price.
Equilibrium
The point where quantity demanded equals quantity supplied.
Shortage
Occurs when buyers want to purchase more units than sellers offer at a given price.
Surplus
Occurs when sellers produce more units than buyers will purchase at a given price.
Price Floor
The lowest legal price that can be paid for a product.
Price Ceiling
The highest legal price that can be charged for a product.
Short-Run Production
A period so short that only variable inputs can be changed.
Long-Run Production
A period long enough to change the amounts of all inputs.
Economies of Scale
Efficiency gains as a firm increases production.
Constant Returns to Scale
When inputs increase by a certain percentage and output increases by the same percentage.
Diseconomies of Scale
When a company’s average cost per unit increases as output increases.
Perfect Competition
A market structure characterized by many producers offering homogeneous goods with free entry and exit.
Total Revenue
The total amount earned by a firm from the sale of its products.
Total Profit
Total Revenue - Total Cost.
Accounting Costs
Direct monetary expenses a business incurs to provide services.
Economic Costs
Non-monetary costs that arise when using an asset or resource.
Marginal Cost
The extra cost of producing one additional unit of output.
Marginal Revenue
The additional revenue generated from selling one more unit of output.
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