CHAPTER 1 Flashcards
Scarcity
The problem arises because we all have limited money, time and energy
Every choice involves a trade off
Economics
How individuals, businesses, and governments make the best possible choices to get what they want, and how choices interact in markets
Opportunity cost
Coz for best alternative given up
Incentives
Rewards and penalties for choices
Absolute advantage
The ability to produce a product or service at a lower absolute cost than another producer
Comparative advantage
The ability to produce a product or service at lower opportunity unity cost than another producer
Mutually beneficial gains
Specialization according to comparative advantage is the key
Model
A simplified representation for the real world focusing attention on what’s important
Inputs
Productive resources
Labour, natural resources, capital equipment, entrepreneurial ability
Input market
Businesses buy the inputs they need to produce products then sell to households
Business buyer housed hold seller
Output market
Businesses seller and household buyer
Economic models
All other things not in the model are unchanged
Equivalent to controlled experiments in a laboratory
Marginal benefit
Additional benefit from a choice, changing with circumstance
Marginal opportunity costs
Additional opportunity costs from the next choice
Implicit cost
Hidden opportunity costs of what business owner could earn elsewhere with time and money invested
