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33 Cards in this Set

  • Front
  • Back
The study of how people make choices in the face of scarcity
The shortage that exists when less of something is available than is demanded at a price of zero
What people would buy if their resources were unlimited
Economic Good
Any item that is scarce
Free Good
A good which is not scarce (S > D when Price = 0)
Economic Bad
Any item which we would pay to have less of
Rewards for engaging in an activity.
The factors of production
Land, labor, capital, human capital and entrepreneurship
All natural resources such as timber, minerals, soil and even natural beauty itself
The physical service of people--muscle power
Tools that are used in production of other goods---these are things we invest in which we do not directly consume
Human Capital
The mental services of people--education, training, skills
Organizational and risk taking abililities
Rationality Assumption
The assumption in economics that people will choose options that make them better off
Positive Economics
Descriptions of what is
Normative Economics
Statements about what ought to be (value judgement)
The study of econ at the level of the individual or the firm
The study of the economy as a whole
Ceteris Paribus Assumption
The assumption that nothing changes expect the factor being studied.
Economic Model
A formal presentation of economic theory
Constructing a genreal theory on the basis of observation
Constructing a general theory on the basis of assumptions and logic
Opportunity Cost
The highest value alternative that must be forgone when a choice is made
Giving up one good in order to get another
Production Possibility Curve--a graphic representation showing the maximum quantity of goods and services that can be produced using limited resouces to the fullest extent
Marginal Opportunity Costs
The ammount of one good or service that must be given up to obtain one additional unit o fanother good or service
The Law of Increasing Costs
That fact that opportunity cost of additional units of a good generally increases as production of more units in attempted. This why the PPC is bowed out.
When an imput produces the maximum possible output. Or, the situation in which a given output is produced at minimun cost.
Marginal Cost
Cost of one more unit
Marginal Benefit
Additional benefit of one more unit.
Inefficient Point
Not producing to maxmimum potential. (Any point below the PPC.)
Absolute Advantage
Being able to produce more of a good (or at a lower cost) than someone else.
Comparative Advantage
The ability to produce a good or service at a lower opportunity cost (relative cost) than someone else.