Fundamentals - econ PDF

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Fundamentals - Key Terms Microeconomics: the study of the economy at the small-scale level, examining individuals and specific markets Macroeconomics: the study of the economy at the large-scale level, examining total output, the price level and other aggregate measures of the economy. Resource: any item that is used to produce goods and services ● Land - all natural resources ● Labor - all physical & mental activity devoted to producing goods & services ● Capital - the tools, machinery, infrastructure & knowledge used to produce goods & services ● Entrepreneurial ability - the talent or ability to combine land, labor & capital to produce goods & services Scarcity: a condition that results from the inability of limited resources to satisfy unlimited wants ● Relative scarcity - the comparison of the scarcity of one good, service or resource to that of another Allocation: the process of assigning a good, service, or resource to one use instead of another Opportunity cost: the value of the next-best forgone alternative; the value of the opportunity that you gave up when you chose one activity, or opportunity, instead of another. Opportunity cost exists because of scarcity Self-interest: the idea that people choose to do the thing that interests them Marginal benefit: the additional benefit associated with 1 more unit of activity Marginal cost: the additional cost associate with 1 more unit of something Marginal decision making: the process of making choices in increments by evaluating the addition, or marginal, benefit against the additional, or marginal, cost of an action. Optimization: the idea that people make choices in order to maximize the overall benefit or an action subject to its cost; people will engage in an activity as long as the marginal benefit is greater than or equal to the marginal cost. 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 Production possibilities frontier (PPF): a graph that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology. The PPF shows the production combinations that are both attainable and efficient. Comparative advantage: the ability to produce a good or service at a lower relative opportunity cost than that of another Specialization: the practice of producing a single good or service rather than producing multiple. Terms of trade: the price of one good, resource, or service in terms of another ● Gains from trade - the benefit that accrues to a buyer or seller as a result of trading one good or service for another Law of increasing opportunity cost: a principle in economics that holds that because some resources are better suited to producing one good or service than another, as the production of a good or service increases, the opportunity cost of each additional unit rises....