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Quiz 1 (Ch. 1-3)

Terms in this set (19)

Microeconomics
The study of individual units that make up the economy
Macroeconomics
The study of the overall aspects and workings of an economy
Economics
Study of how people allocate their limited resources to satisfy their nearly unlimited wants.
Scarcity
The limited nature of society's resources, given society's unlimited wants and needs
Five Foundations of Economics
1. Incentives
2. Trade-offs
3. Opportunity costs
4. Marginal thinking
5. Trade creates value
Incentives
Factors that motivate you to act or exert effort
Types: Positive, negative, direct, indirect
Trade-Offs
Scarcity - give up something to get something else
Opportunity cost
The highest valued alternative that must be sacrificed in order to get something else
Marginal Thinking
Evaluating whether the benefit of one more unity of something is greater than the cost
Trade Creates value
Markets bring buyers and sellers together to exchange goods and services
Positive statement
A statement that can be tested and validated
Normative Statement
a statement that is an opinion and cannot be tested or validated
Production Possibilities Frontier (PPF)
a model that illustrates the combinations of outputs that a society can produce if all of its resources are being used efficiently.
absolute advantage
the ability of one producer to make more than another producer with the same quantity of resources
comparative advantage
the ability to make a good at a lower (opportunity) cost than another producer.
Marginal benefit vs Marginal cost
A rational choice is always to consume up to the point where MB=MC
-If MB>MC do it
-If MB<MC dont do it
Quantity Demanded
the amount of a good purchased at a given price.
Law of Demand
There is an inverse relationship between price and quantity demanded
Market demand
adding up each individuals quantity demanded at each price
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