Lesson 3 - Choice, Scarcity And Opportunity Cost Flashcards
What is the economic problem?
Resources are scarce and wants are unlimited
What is a shortage?
Too much demand, not enough supply (excess demand)
What is an incentive?
Initiative designed to encourage people to take a particular course of action
Name and explain the 2 types of incentives
Remunerative = financial
Coercive = laws, regulations
What is the substitution effect?
Older people tend to substitute leisure for work
What is total utility?
The total satisfaction gained from consuming a good or service
What is marginal utility?
The satisfaction gained from consuming one more of that good or service
What is diminishing marginal utility?
Each additional consumption results in less utility than the one before
What is an opportunity cost?
The sacrifice of the rejected option when a decision is made
What are economic and free goods?
Economic = goods that require other goods to make (require opportunity cost)
Free = goods that don’t require other goods to make (no opportunity cost)
What are consumer and capital goods?
Consumer = goods made to be used by consumers directly
Capital = goods made to make other goods
