Unit #1 Flashcards
Economics
Social science concerned with the efficient use of scarce resources to meet unlimited wants
Scarcity
Unlimited wants but limited resources
Rational self interest
Economists believe that people choose options that give them the greatest satisfaction
Incentives and disincentives
Rewards or punishments that motivate laborers
Opportunity cost
The value of what you must give up in order to do something (trade-off)
Per unit cost
give up/ gain
Law of increasing opportunity costs
As you produce more of any good, opportunity cost increases. Resources for producing both goods are NOT equally suited. PPF graph is concave out from origin.
Law of constant opportunity cost
As you produce more of any good, the opportunity cost will remain constant. Resources for producing both goods are EQUALLY SUITED. PPF is a straight line.
Consumer goods
Goods for direct consumption
Capital goods
Goods used to produce consumer goods. Human capital- knowledge/skills of workers. Physical capital- machines, factories, technology, tools, etc.
Shifters in PPF
- Change in resources
- Change in technology
Absolute advantage
The producer that can produce the most output with the same resources
Comparative advantage
The producer with the lowest opportunity cost
Calculating opportunity costs
Output: OOO = output other over
Input: IOU = input other under
Specialization and trade
Countries are able to consume goods that they are unable to produce (consume outside of PPC)
