Models in Economics Flashcards
Define opportunity cost
What must be given up in order to get something. The true cost of something is its opportunity cost
Define marginal decision
Decision made at the margin of an activity about whether to do a bit more or a bit less of that activity (e.g. Study or sleep
Why do people usually respond to incentives?
In order to exploit opportunities and make themselves better off
Define equilibrium
A situation in which no individual would be better off doing something different
Define efficiency
Taking all opportunities to make some people better off without making other people worse off
Define overall spending
The amount of goods and services consumers and business want to buy
Define productive capacity
The amount of goods and services the economy is capable of producing
What is the Production Possibility Frontier (PPF)?
A diagram that shows the combinations of two goods that are possible for a society to produce at full employment
Give 2 sources of economic growth
- An increase in factors of production (resources used to produce goods and services)
- Better technology (the technical means for producing goods and services)
Give 4 factors of production
- Land/natural resources
- Labour
- Physical capital - manufactured items used to produce other goods
- Human capital - educational achievements and skills of the labour force
Define comparative advantage
Producing what you’re good at and buying everything else
When is trade efficient?
When a company can sell for any price above their cost of production and buy for any price below their cost of production
Define absolute advantage
A country can produce more output per worker than other countries
