Economics Exam 1 Study Guide
Vocabulary
* Opportunity Cost – the value of the opportunities lost * Total Cost – the “all or nothing” cost of engaging in any activity * Marginal Cost – describes how total costs change as I change the amount (or intensity) of the activity * Benefits – The advantageous or desirable outcome of an action * Inflation – an increase in the general level of prices * Absolute Advantage – the ability to produce the same good using fewer inputs than any other producer. * Production Possibilities Frontier – shows all the combinations of goods that a country can produce given its productivity and supply of inputs * Comparative Advantage – a country has a comparative advantage in producing goods for which it has the lowest opportunity cost. * Demand Curve – a function that shows the quantity demanded at different prices * Quantity Demanded – the quantity that buyers are willing and able to buy at a particular price * Consumer Surplus – the consumer’s gain from exchange, or the difference between the maximum price a consumer is willing to pay for a certain quantity and the market price * Total Consumer Surplus – the area beneath the demand curve and above the price * Normal Goods – a good for which demand increases when income increases * Inferior Goods – a good for which demand decreases when income increases * Substitutes – good that can be purchases in place of each other. A decrease in price of one substitute leads to a decrease in demand for the other good. * Complements – goods commonly purchased together. A decrease in the price of one good leads to an increase in demand for the other good. * Supply Curve – a function that shows the quantity supplied at different prices * Quantity Supplied – the amount of a good that sellers are willing and able to sell at a particular