Midterm/Final Prep for Principles of Microeconomics

Division of Labor (Adam Smith)

• when people specialized in task, productivity increases because each person focuses on what they do best

• markets expand when people can trade. Things like transportation, technology and communication limit how large markets can get

• value of what you give up when making a choice

• a person/country should produce the good with the lowest opportunity cost

Limits of Market Size

• when people specialized in task, productivity increases because each person focuses on what they do best

• markets expand when people can trade. Things like transportation, technology and communication limit how large markets can get

• value of what you give up when making a choice

• a person/country should produce the good with the lowest opportunity cost

Opportunity Cost

• who can produce more of a good using the same resources

• markets expand when people can trade. Things like transportation, technology and communication limit how large markets can get

• value of what you give up when making a choice

  aka

  next most valuable thing

• a person/country should produce the good with the lowest opportunity cost

Comparative Advantage

• who can produce more of a good using the same resources

• markets expand when people can trade. Things like transportation, technology and communication limit how large markets can get

• both sides gain because trade allows them to consume beyond what they could produce

• a person/country should produce the good with the lowest opportunity cost

Absolute Advantage

• who can produce more of a good using the same resources

• markets expand when people can trade. Things like transportation, technology and communication limit how large markets can get

• both sides gain because trade allows them to consume beyond what they could produce

• a person/country should produce the good with the lowest opportunity cost

Trade is Mutually Beneficial because

• who can produce more of a good using the same resources

• markets expand when people can trade. Things like transportation, technology and communication limit how large markets can get

• both sides will gain. trade allows them to consume beyond what they could produce

• a person/country should produce the good with the lowest opportunity cost

shows how much consumers want at different prices. Always slopes DOWNWARD

_ curve

shows how much producers will sell at different prices. Always slopes UPWARD

_ curve

movement along the curve is caused by

• price change

• outside factors such as income, technology, tastes, expectations, number of buyers, etc.

shift of the curve is caused by

• price change

• outside factors such as income, technology, tastes, expectations, number of buyers, etc.