Fundamentals

Constant Opportunity Cost

A characteristic of production whereby the opportunity cost associated with increasing the production of one good or service, in terms of another, is constant at every level of production.

circular flow model

A model that concisely describes how goods, services, resources, and money flow back and forth in an economy.

Land

All natural resources used in production; sometimes referred to as "gifts of nature."

efficient allocation of resources

Allocation of resources in such a way that it is possible to increase the production of one good only by decreasing the production of another.

Resource

Any item, whether a gift of nature, the result of production, or the result of human effort, that is used to produce goods and services.

Marginal benefit of earring ice cream is falling

I love ice cream. but I've eaten so much ice cream today. I can't possible eat another cup

firms

In the circular flow, who provides goods and services?

Rational decision making

Self-interest, marginal decision making, and optimization form the basis for:

Marginal benefit

The additional benefit associated with 1 more unit of an activity. Change in total benefit (TB) / Change in Quantity (Q) = TB/Q

gains from trade

The benefit, or wealth, that accrues to a buyer or seller as a result of trading one good, service, or resource for another. The wealth, or additional well-being, created by trade does not have to be monetary.

resource and product

The circular flow model shows how households and firms interact in two key markets: the _______ market and the ______ market. (Remember - enter only one word per blank.)

relative scarcity

The comparison of the scarcity of one good, service, or resource to that of another.

increasing marginal cost

The condition in which the additional cost associated with each successive unit of an activity increases

Optimization

The idea that people make choices in order to maximize the overall benefit, or utility, of an action subject to its cost; people will engage in an activity as long as the marginal benefit of an activity is greater than or equal to its marginal cost.

Decreasing marginal benefit

The negative relationship between the marginal benefit associated with the use of a good or service and the quantity consumed; the more of a good or service that is consumed, in a given period of time, the lower the marginal benefit associated with each additional unit.

Allocation

The process of assigning a good, service, or resource to one use instead of another.

marginal decision making

The process of making choices in increments by evaluating the additional, or marginal, benefit against the additional, or marginal, cost of an action.

Marginal decision making

When you decide to turn off the bedroom light on your way to the kitchen so that you can save a little money on your electric bill, you are engaging in:

scarcity

a condition that result from the inability of limited resources to satisfy unlimited wants

production possibilities frontier

a graph that shows the possible combination of two different goods or services that can be produced with fixed resources and technology also shows the production combination that are both attainable and efficient

law of increasing opportunity cost

a principle in economics that holds that because some resources are better suited to producing one good or services than another as the production of a good or service increases the opportunity cost of each additional unit rises

simplifying a very complex economic world

a strong economic model allow us to analyze the economic events of the world by:

Production possibilities schedule

a table that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology the production possibilities frontier or curve is a graphical presentation of the:

Labor

all physical and mental activity devoted to producing goods and services

inefficient allocation of resources

allocation of resources in such a way that it is possible to increase the production of one good without decreasing the production of another

increases

as the amount of an activity increases, its marginal cost:

allocating resources

because the world is characterized by scarcity, people must choose between different uses for the resources at their disposal. In economics, we refer to this as:

efficient use of resources

combination of output along the PPF correspond to:

income

funds that firms pay for resources are cost to firms but they represent which of the following type of flow to households?

comparing the levels of consumption available before and after the trade

gains from trade can be measured by:

frontier

graphing the information in the production possibilities schedule produces the production possibilities

Economics

is the study of how individuals and institutions make decisions in a world of scarce resources

what is the major problem for developing countries

relative scarcity of drinkable water

Because the world is characterized by scarcity, people must allocate the limited ________ at their disposal among many competing uses

resources

why does opportunity cost exist?

scarcity

Physical capital

tangible items that are created to increase productivity

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

Marginal cost

the additional cost associated with one more unit of an activity Change in total cost (TC) / Change in quantity (Q) = TC/Q

self-interest

the idea that people choose to do the things that interest them

human capital

the knowledge and skills that people acquire in order to increase productivity

Optimal level of output

the level of output at which the marginal benefit of the last unit produced and consumed is equal to the marginal cost of that unit MB=MC also known as Equilibrium

specialization

the practice of using available resources to produce a single good or service rather than producing multiple good of services

terms of trade

the price of one good, service, or resource in terms of another

economics

the qualitity of an __________ model can be measured by how well it reflects reality and whether it give us insights that can be used in the real world

constant

the simple model of production assumes that the opportunity cost of production is:

Macroeconomics

the study of the economy at the large-scale level, examining total output, the price level, and other aggregate measures of the economy

Microeconomics

the study of the economy at the small scale level examining individuals and specific markets

entrepeneurial ability

the talent or ability to combine land, labor, and capital to produce goods and services different from human capital in that I primarily involves assuming risk and organizing resources into a productive process

Capital

the tools, machinery, infrastructure, and knowledge used to produce goods and services sometimes divided into physical and human

households and business

the two parties involved in the simple circular flow model are:

Opportunity cost

the values of the next best forgone alternative the values of the opportunity that you gave up when you chose one activity is most plainly visible when spending Moree money on one ting means that less money can be spent on another thing