Absolute Advantage: exists if a producer can produce more of a good than all other producers.

Comparative Advantage: a producer has comparative advantage if he can produce a good at lower opportunity cost than all other producers.

Economic Growth: occurs when an economy’s production possibilities increase.

Economics: the study of how people, firms, and societies use their scarce productive resources to best satisfy their unlimited material wants.

Human capital: the amount of knowledge and skills that labor can apply to the work they do and the general level of health that the labor force enjoys.

Inferior goods: a good for which high income decreases DEMAND

Law of Demand: There is an inverse or indirect relationship between the price of a product and the quantity of that product that consumers are willing and able to buy.

Law of Supply: There is a direct or positive relationship between the price of a product and the quantity of the product supplied by the producer.

Marginal Analysis: making decisions based up weighing the marginal benefits and costs of that action.

Marginal Benefit (MB): the additional benefit received from the consumption of the next unit of a good or service.

Marginal Cost (MC): the additional cost incurred from the consumption of the next unit of a good or service.

Marginal: the next unit or increment of an action.

Normal goods: a good for which higher income increases DEMAND

Opportunity Cost: the value of the sacrifice made to pursue a course of action.

Production Possibilities: different quantities of goods that an economy can produce with a given amount of scarce resources.

Productive Efficiency: production of maximum output for a given level of technology and resources. All points on the PPF are productively efficient.

Productivity: the quantity of output that can be produced per worker in a given amount of time.

Resources: called factors of production, these are commonly grouped into the four categories of labor, physical capital, land or natural resources, and entrepreneurial ability. (SUPPLY)

Scarcity: the imbalance between limited productive resources and unlimited human wants. Because economic resources are scarce, the goods and services a society can produce are also scarce.

Specialization: when firms focus their resources on production of goods for which they have comparative advantage, they are said to be specializing.

Substitute goods: two goods are consumer substitutes if they provide essentially the same utility to the consumer.

Substitution effect: the change in QDemanded resulting from a change in the price of one good relative to the price of other goods.

Technology: a nation’s knowledge of how to produce goods in the best possible way.

Trade-offs: scarce resources imply that individuals, firms, and governments are constantly faced with difficult choices that involve benefits and costs.

Utility: The use or satisfaction that a good or service provides to a consumer.