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| The decision making process comparing perceived costs and benefits of available alternatives. |
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| An economy with some public influence over the working of free markets. |
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| The process of removing details to arrive at essential information |
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| A theory is a deliberate simplification of relationships used to explain how those relationships work |
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| The opportunity cost of some decision is the value of the next best alternative that must be given up because of that decision (What do you give up?) |
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| A depiction of a specific relationship perceived through abstraction (Circular Flow Diagram) |
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| two variables are said to be correlated if they tend to go up or down together |
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| Inputs (factors of production) are the labor, machinery, buildings and natural resources used to make outputs. Outputs are the goods and services that consumers and others want to acquire. |
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| One country is said to have a comparative advantage over another in the production of a particular good if it produces that good less inefficiently as compared with the other country. Lower opportunity cost of production. |
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| Individuals predominately produce only parts or components |
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| An optimal decision is one that best serves the objectives of the decision maker, whatever those objectives may be. It is selected by explicit or implicit comparison with the possible alternatives choices. The term optimal connotes neither approval nor disapproved of the objective itself. |
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| A set of outputs is said to be produced efficiently if, given current technological knowledge, there is no way one can produce larger amounts of any output without using larger input amounts or give up some quantity of another output. |
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| Production Possibility Frontier |
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A graphical representation of opportunity cost
- Each axis is a potential output on the basis of using all resources
- There are points where a firm can trade-off one output for another
- The same concept exists for households a.k.a. budget constraint
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| Principle of Increasing Costs |
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| The principle of increasing costs states that as the production of a good expands, the opportunity cost of producing another unit generally increases. |
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| Gross domestic product (GDP) is the sum of the money values of all final goods and services produced in the domestic economy and sold on organized markets during a specified period of time, usually a year. GDP is a measure of the size of the economy – the total amount it produces in a year. |
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| Differences in Economic Theory exists because one person’s interpretation may come from: |
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Definition
- A different set of data to work with
- A different perspective that identifies different issues
- An intentional attempt to offer a counter-position
- A pre-existing goal or desired outcome
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