Economic Fundamentals – Flashcards

The study of the economy at the small-scale level, examining individuals and specific markets.

The study of the economy at the large scale level, examining total output, the price level, and other aggregate measures of the economy.

Any item, whether a gift of nature, the result of production, or the result of human effort, that is used to produce goods and services.

All natural resources used in production; sometimes referred to as "gifts of nature."

All physical and mental activity devoted to producing goods and services.

The tools, machinery, infrastructure, and knowledge used to produce goods and services. Capital is sometimes divided into "physical" and "human" capital.

refers to tangible items that are created to increase productivity.

refers to the knowledge and skills that people acquire in order to increase productivity.

A condition that results from the inability of limited resources to satisfy unlimited wants.

The comparison of the scarcity of one good, service, or resource to that of another.

the process of assigning a good, service, or resource to one use instead of another.

the value of the next best forgone alternative; the value of the opportunity that you gave up when you chose one activity, or opportunity, instead of another. Opportunity costs exist because of scarcity.

The idea that people choose to do the things that interest them.

The additional benefit associated with one more unit of and activity. MB = change in total benefit / change in quantity

The additional cost associated with one more unit of an activity. MC = change in total cost / change in quantity

the process of making choices in increments by evaluating the additional, or marginal, benefit against the additional, or marginal, cost of an action.

the idea that people make choices in order to maximize the overall benefit, or utility, of an action subject to its cost; people will engage to its marginal cost. MB >=MC Do It! MB < MC Don't Do It

a term used to describe that have three characteristics: 1) A decision is self interested if it is consists with the motives and objectives of the individual of group making the decision. 2) A decision involves marginal analysis when the marginal benefits associated with an activity are compared to its marginal costs. 3) Finally, a decision maximizes overall benefit if no other available action would generate larger benefits, or greater well being.

the negative relationship between the marginal benefit associated with the use of a good or service and the quantity consumed; the more of a benefit associated with each additional unit.

the positive relationship between the marginal coat associated with the use of a good or service and the quantity produced; the more of a good or service that is produced, in a given period of time, the higher the marginal cost associated with each additional unit.

the level of output at which the marginal benefit of the last unit produced and consumed is equal to the marginal cost that unit. MB = MC