Key Terms
Everything in economics starts here
Resources are limited. Wants are not.
Answer
The full cost is not just tuition. It includes opportunity cost — the income and time given up to attend school.
Formula
Marginal cost = Change in total cost from one option to the next
Table
Selected points on Camila's budget constraint
Definition
A decision is economically rational when the marginal benefit of a choice is greater than the marginal cost.
Example
Basic gym membership ($30/month) gives pool access. Full membership ($40/month) adds weight room access.
Comparative advantage
The ability to produce a good at a lower opportunity cost than another producer
Result
Brazil specializes in sugar cane. U.S.
Marginal
Means additional or extra. Marginal analysis: comparing the costs and benefits of a little more or a little less; also c
Positive statement
Fact-based; can be tested; describes what is
Normative statement
Value-based; describes what should be
Scarcity
Resources are limited; wants are not; forces choices
Opportunity cost
The value of the next best alternative given up when a choice is made
Budget constraint
All combinations of two goods a consumer can buy with a fixed budget; always a straight line
Production possibilities frontier (PPF)
All combinations of two goods a society can produce with available resources; bows outward