1. Thinking at the margin: Deciding whether to do or use one additional unit of resource Opportunity cost The most desirable alternative given up as a result of a decision. Efficiency Using resources in such a way as to maximize the amount of goods and services. Production Possibility Frontier The line on a production possibility graph that shows the maximum possible output for a specific economy Scarcity Limited quantities of resources to meet unlimited wants

2. Trade-off ◦ Giving up one alternative for another Underutilization ◦ Using fewer resources than an economy is capable of using Decision Making Grid- Helps you determine some of the opportunity costs of a decision (sleeping vs. getting up early to study) Marginal cost- ◦ The cost of making one more good. ◦ Marginal Cost equal to the market price. ◦ For example: We are a t-shirt factory. It costs $50 to make 30 t- shirts. If we make 31 t-shirts it costs $55. The marginal Cost is $5.

3. When does a countries production possibility grow? ◦ When there is an increase in resources  i.e.: advances in technology, additional population etc. When does it shrink? ◦ When there is a decrease in resources.  i.e.: Natural disasters, population loss

4. What is the purpose of production possibility graphs? - shows the maximum possible output for a specific economy - shows alternative ways to use a countries resources. What does each point indicate? ◦ Efficiency ◦ The maximum use of resources. The frontier is usually curved because the increasing cost results in less output.

5. Why are all goods and services scarce? Because all resources are scarce.

6. Explain the Law of increasing costs. As a country produces more and more of one good their opportunity cost increases. ◦You are producing banana and cars. Originally you are producing more bananas than cars but you have decided to start producing more cars than bananas. According to the law of increasing costs your cost of producing cars will increase.

7. Explain the idea of guns or butter. The idea of a country using their resources towards defense/military or towards social programs/production of goods. ◦i.e.: increasing military spending or helping farmers.