Principles of Economics-Chapter 1

Economic Thinking

A purposeful evaluation of the available opportunities to make the best decision possible

Circular Flow Diagram

A visual model of the economy, shows how dollars flow through markets among households and firms

Markets

Bring buyers and sellers together to exchange goods and services

Economics

Economics is the study of how individuals and societies allocate their limited resources to satisfy their practically unlimited wants.

Trade

Exchange of goods and services

Incentives

Factors that motivate people to act or exert effort.

What are the 5 foundations of economics?

Incentives Trade-offs Opportunity cost Marginal thinking Trade creates value

Marginal Thinking

Requires decision-makers to evaluate whether the benefit of one more unit of something is greater than its cost

Opportunity Cost

The highest-valued alternative that must be sacrificed in order to get something else

Scarcity

The limited nature of society's resources, given society's unlimited wants and needs

Microeconomics

The study of the economic behavior and decision making of small units, such as individuals, families, and businesses.

Macroeconomics

The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth

Comparative Advantage

the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors