Scarcity: unlimited wants, limited resources. Every choice has an opportunity cost = next-best alternative forgone. Economics asks how households, firms, and governments allocate scarce resources.

Marginal analysis: choose the action where MB ≥ MC for one more unit, and stop when MB = MC. Rational choice at the margin does not mean perfect choices overall.

Economic growth shifts PPF outward | unemployment/inefficiency moves production inside PPF

Absolute advantage: produce with fewer resources. Comparative advantage: produce at lower opportunity cost. Trade gains come from comparative, not absolute, advantage.

For a competitive firm, price is given by the market, so MR = P. Profit-maximizing rule: produce where MR = MC, then check shutdown.

A monopoly faces the market demand curve, so to sell more it usually must lower price. Therefore MR < P for all but the first unit.

Compared with perfect competition, monopoly tends to produce less output, charge higher price, and create deadweight loss.

Economic profit = 0 does not mean accountants see zero profit; it means normal return is already included in cost.

Law of demand: higher price usually lowers quantity demanded. Law of supply: higher price usually raises quantity supplied. Price changes cause movement along curves, not shifts.

If both curves shift, quantity and price changes depend on relative size. On exams, one variable may be definite while the other is ambiguous.

Consumer surplus: willingness to pay minus price. Producer surplus: price minus willingness to sell. Total surplus is maximized in competitive equilibrium absent externalities.

Diminishing marginal product: as more variable input is added to fixed input, MP eventually falls. This drives the U-shape of short-run cost curves.

When MC < average, the average falls. When MC > average, the average rises. Same logic works for AVC, ATC, and AP.

Fixed cost does not affect the shutdown rule in the short run because it must be paid whether output is produced or not.

GDP measures the market value of final goods and services produced within a country in a given period. Excludes intermediate goods to avoid double counting.

Unemployment rate counts labor force members without jobs who are actively seeking work. Labor force = employed + unemployed. Discouraged workers are not in the labor force.

Real variables adjust for inflation; nominal variables do not. If nominal wages rise slower than prices, real wages fall.

Demand is more elastic when there are close substitutes, the good is luxury not necessity, buyers have more time to adjust, and the good takes a larger budget share.

Supply elasticity depends on how easily firms change output. More time and more flexible inputs usually mean more elastic supply.

A budget line shows affordable bundles. Income increase shifts it outward parallel if prices unchanged. Price change pivots the line because one intercept and the slope change.

Indifference curves show equal utility. They are usually downward sloping and bowed inward because of diminishing marginal rate of substitution.

Interpretation: the last dollar spent on each good should generate the same marginal utility. If MUx/Px is larger, buy more X and less Y.

Expansionary policy raises aggregate demand; contractionary policy lowers it. In ECON 101, recession usually calls for expansionary tools, inflation pressure for contractionary tools.

Banks create money through lending under fractional reserves. More reserves required means a smaller multiplier and less potential money creation.

Countries gain from trade by specializing in goods with comparative advantage and trading for the rest. Terms of trade must lie between the two countries' opportunity costs.