Chris AguemonMaher-B7Words 1-8

Scarcity

People have unlimited wants Resources are limited Decisions must be made to allocate

resources efficiently. Oil is a scarce resources

Marginal Analysis An examination of the additional benefits of an

activity Compared to the additional costs of that activity. Gives the best value for your expenses Hour Hourly Wage Value of

TimeHour 1 $10 $2Hour 2 $10 $2Hour 3 $10 $3Hour 4 $10 $6Hour 5 $10 $4Hour 6 $10 $5Hour 7 $10 $6Hour 8 $10 $8

Production Possibilities Curve and Schedule Analysis of the alternative

combinations of two goods What an economy can produce with

existing resources Given time period

Opportunity Cost

The cost of an alternative that must be forgone in order to pursue a certain action.

Lamen Terms: What you give up Ex: You have $20.

You want pizza ($18) and Soda ($11)

You can’t have bothIf you decide on pizza, soda

becomes the opportunity cost

Law of Increasing Costs (Opportunity Costs)

As production of a particular good increases, opportunity cost of producing an additional unit rises

Implied by PPC Ex: If you have enough resources to

produce one of product A, or you could use the same resources to produce 2 of product B, then the opportunity cost of product A is 2 product Bs.

This increases as you make more of A

Comparative Advantage

A situation in which a country, individual, company or region can produce a good at a lower opportunity cost than a competitor.

Ex: Two companies called Company A and Company B.

Company A must spend a lot of money to make ice cream, whereas Company B spends way less to produce the same amount. The two firms are dead even in their production costs for bicycles.

Company B has a comparative advantage over Company A in ice cream.

Company A should also probably give up the ice cream and focus on the product in which it is the least disadvantaged (bicycles).

Absolute Advantage vs. Comparative Advantage Absolute- ability to produce more than

your competitor Comparative- Have the least opportunity

cost to produce said good Ex: US vs Cuba Coffee 5 1 Sugar 1 5

Specialization

Use of resources of an individual or firm to produce one or a few goods

Makes use of differences in ability and saves time.

Ex: Assembly Line

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