Absolute Advantage
the ability to produce a good using fewer inputs than another person
Comparative Advantage
the ability to produce a good at a lower opportunity cost than another producer
Production Possibilities Curve
Assumes an economy or laborer than can only make 2 products quantifies the trade-off between these two products as a movement along the curve
Voluntary Exchange
trade in which both traders believe that what they are geting is worth more than what they are giving up
Market
group of buyers and sellers of a particular good or service
Competitive Market
a market in which there are many buyers and sellers so that each has almost no impact on the market price
Demand
desire to have some good or service and the ability to pay for it
Law of Demand
when the price of a good or service falls, consumers buy more of it
Demand Curve
graph that shows how much of a good or service will be bought at each price
Change in Quantity Demanded
a change in price results in a change in quantity demanded ("movement along the curve")
Normal Good
Income goes down, demand goes down
Inferior Good
Income goes down, demand goes up
Substitute
two goods for which an increase in the price of one leads to an increase in the demand for the other
Complement
two goods for which an increase in the price of one leads to a decrease in the demand for the other
Supply
the willingness and ability of producers to offer goods and services for sale
Law of Supply
products are willing to sell more of a good or service at a higher price than they are at a higher price
Supply Curve
graph that shows how much of a good or service an individual producer is willing and able to offer for sale at which price to offer for sale at each price
Change in Quantity Supplied
a change in price results in a change in quantity supplied ("movement along the curve")
Input Prices
the price of the resources needed to produce a good or service
Labor Productivity
the amount of good or services that a person can produce in a given time
Technology
the application of scientific methods and discoveries to the production process, resulting in new products or new manufacturing techniques
Expectations
the amount a firm supplies today may depend on its expectations of the future
Number of Sellers
the more sellers, the more supply; the fewer sellers, the less supply
Equilibrium Price
the price where the goods and services supplied by the producer equals the goods and services demanded by the customers
Equilibrium Quantity
the quantity demanded or supplied at the equilibrium price
Shortage
situation in which quantity demanded is greater than quantity supplied
Law of Supply and Demand
claim that the price adjusts to bring the quantity supplied and the quantity demanded for that good in to balance (equilibrium)