UNIT 1: BASIC ECONOMIC CONCEPTS Flashcards
scarcity
limited amount but unlimited desire of something
TINSAAFL
there is no such thing as a free lunch
- every time you make a decision, you pay in some way
rational behavior
we make an assumption that people are rational when making decisions, a ratio of costs to benefits
marginal cost (MC)
the additional cost incurred when you do/buy/make/use the next thing
marginal benefit (MB)
the additional benefit incurred when you do/buy/make/use the next thing
capital
a thing that is used to do other things
consumer goods
personal consumption with the good
ex: a pen used to write in my diary
capital goods
capital consumption, to produce consumer goods
ex: a pen to write and publish a book for profit
optimal allocation
using our time, energy and resources at the right time to do the right thing, where mb = mc
trade off
exchange of something of value for something else with value
opportunity costs
the loss of the chance to get/buy/do/make the next best thing
factors of production
land, labor (entrepreneur) and capital
production possibilities frontier (ppf)
the edge/limit/extent of what we can make
perfect substitutable
a situation where two goods are viewed as identical
the three economic systems
command, traditional and market
total utility
overall satisfaction received from consuming goods and services
marginal utilty
additional satisfaction from consuming an additional quantity of that item
utility maximizing rule
MUx/Px = MUy/Py
specialization
what ___ is good at
absolute advantage
can outproduce another
self-sufficiency
able to maintain without aid
comparative advantage
can produce at a lower opportunity cost
