Unit 1: Basic Economic Concepts

Vocabulary flashcards covering core concepts from Unit 1: Basic Economic Concepts, including scarcity, factors of production, efficiency, and economic systems.

Economics

The study of scarcity and choice

Trade-off

When you give up something to get something else

Resource

Anything that can be used to produce something else

Factors of production

1. Land 2. Labor 3. Capital 4. Entrepreneurship

Land (factors of production)

All natural resources used to produce goods and services

Labor (factors of production)

The effort of workers

Capital (factors of production)

Any man made item that is used in the production of goods (ex. assembly lines, warehouses, commercial airplanes and delivery trucks, printing presses, roads, bridges, railways)

Entrepreneurship

The process of starting, organizing, managing, and assuming the responsibility for a business

Marginal analysis

The study of the costs and benefits of doing a little bit more of an activity versus a little bit less

Marginal benefit

The gain from doing something once more (ex: spending a little time studying extra for a test)

Marginal cost

The cost from doing something once more (ex: choosing to party instead of study means you let go of the points you would have earned if you studied)

Opportunity cost

The value of the next best alternative you give up when making a particular choice (ex: going to college instead of pursuing a professional sports career)

Microeconomics

The study of how individuals, households, and firms make decisions and how those decisions interact

Macroeconomics

Study of the behavior of the economy as a whole

Positive economics

Economic statements that are factual (ex. "employment rate dropped by 5% last year.")

Normative economics

Makes prescriptions about the way the economy should work (ex. "the minimum wage should be increased")

Four main economic systems

Traditional, Command, Market, Mixed

Incentives

Rewards or punishments that motivate particular choices

Production Possibilities Curve (PPC)

A graph that shows the trade-offs facing an economy that only produces two goods

Efficiency

Using resources in such a way as to maximize the production of goods and services

Productive Efficiency

Produces at any point along the PPC (on the line/curve itself is max efficiency)

Allocative efficiency

Produces at the point along its PPC that benefits the consumer as much as possible (lowest possible price for consumer while retaining quality and income)

Increasing Opportunity Cost

On the PPC, shows as a curved concave line (bows outwards)

Economic Growth

The ability of the economy to increase the production of goods and services

Scarcity

Limited quantities of resources to meet unlimited wants

Comparative advantage

the person/country producing faces the lowest opportunity cost than anyone else.

absolute advantage

producing more of a good or service with the same given time and resources.

Terms of Trade

indicate the rate at which one good can be exchanged for another

explicit costs

paid with dollars (or other form of tangible currency)

implicit costs

paid with time and missed opportunity (as opposed to physical currency like dollars)

Utility

measure of satisfaction

Utils

numerical measure of satisfaction (the higher the better)

Marginal utility

change in total utility when ONE more unit of the good is consumed (cookies example).

Principal of Diminishing Marginal utility:

successive units of a good or service (typically) add less total utils than previous units.

TL;DR: less and less satisfaction everytime you consume the same good (rewatching a movie or eating too many cookies)