The study of how people choose to use scare resources. It’s not the study of money, finance, the stock market, etc.
What is Microeconomics?
Study of how individual businesses, consumers, and markets function.
What is Macroeconomics?
The study of how all businesses, consumers, and markets function as an aggregate (whole).
What is scarcity?
The inability of our limited resources to fulfill our unlimited wants (remember – there aren’t any real needs).
What is Choice?
Due to scarcity we must choose how to allocate the available resources. We make our choice from the two best options. We always have a choice!!!
What is Opportunity Cost? (OC)
the second choice (alternative) we forgo (give up) when making a decision (choice).
What is Efficiency?
Exists when the production of one good cannot be increased without a decrease in production of another. There is no waste, we do not want to waste scarce resources.
What is Marginalism?
Central to economic analysis. An economist looks at what the additional unit / qty of input adds (MB) and what that additional unit / qty costs (MC). Remember – we continue to do / add something as long as MB > MC.
What is Rational Behavior?
We act to maximize happiness (MB) and minimize pain (MC). Because evaluations of MB and MC are subjective
What is Incentive?
Something that motivates an individual or group to perform an action
What is Utility?
The total satisfaction (benefit / happiness) received from consuming a good or service.
What is sunk cost?
costs paid in the past that cannot be recovered
What is Cost of Production?
Resource and other costs incurred in the production of a good or service.
What is Law of Increasing Opportunity Cost?
Resources become less productive as they are moved from the production of one good to another.
What is Absolute Advantage?
The ability to produce a good or service using fewer inputs than another producer
What is Comparative Advantage?
the ability to produce a good at a lower opportunity cost than another producer.
Basis of international trade
What is Specialization?
allows a nation to focus on producing a good / service that they can produce at comparatively lower OC cost and trade it away for a good / service for which they have a higher OC