1. Chris Aguemon Maher-B7 Words 1-8

2. Scarcity  People have unlimited wants  Resources are limited  Decisions must be made to allocate resources efficiently.  Oil is a scarce resources

3. 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 Time Hour 1 $10 $2 Hour 2 $10 $2 Hour 3 $10 $3 Hour 4 $10 $6 Hour 5 $10 $4 Hour 6 $10 $5 Hour 7 $10 $6 Hour 8 $10 $8

4. Production Possibilities Curve and Schedule  Analysis of the alternative combinations of two goods  What an economy can produce with existing resources  Given time period

5. 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 both If you decide on pizza, soda becomes the opportunity cost

6. 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

7. 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).

8. 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

9. 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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