Scarcity means that the limited nature of resources is insufficient to satisfy all human wants. This forces individuals and societies to make choices about how to allocate resources.

Capitalism relies on market forces where supply and demand determine resource allocation. This system encourages competition and consumer choice.

Opportunity cost is defined as the value of the next best alternative that must be forgone when a choice is made. It is a key concept in understanding tradeoffs in economics.

The law of demand states that, ceteris paribus, an increase in price leads to a decrease in quantity demanded. This inverse relationship is fundamental in market analysis.

Prices in a market economy serve as signals that help coordinate the allocation of resources. They communicate information about scarcity and consumer preferences.

Elasticity measures how much the quantity demanded of a good changes in response to a change in its price. This helps businesses understand how a change in price can affect overall sales and revenue.

The law of supply states that, all else equal, an increase in the market price of a good encourages suppliers to produce more. Higher prices typically offer greater profit incentives.

A production possibility curve illustrates the maximum feasible quantities of two goods that can be produced with available resources and technology. It highlights the tradeoffs and opportunity costs in production.

Marginal cost is the cost of producing one additional unit of a good. Understanding marginal cost is critical for firms when making decisions about increasing production.

For normal goods, higher consumer income usually leads to an increase in demand. This is because consumers are able to afford more of these goods as their income rises.

Non-price determinants such as changes in consumer preferences, tastes, and expectations can shift the demand curve. These factors alter demand independent of the good's price.

Specialization lets countries or firms focus on producing goods they can produce most efficiently. Trade then allows these economies to enjoy a variety of goods at lower opportunity costs.

Monetary policy, which includes actions like adjusting interest rates and controlling money supply, is commonly used to target and control inflation. This tool influences overall economic activity.

Money primarily functions as a medium of exchange, facilitating trade by eliminating the inefficiencies of a barter system. While it also serves as a store of value and a unit of account, its main role is to ease transactions.

Comparative advantage means that an entity can produce a good at a lower opportunity cost compared to another. This principle encourages specialization and mutually beneficial trade.

A price ceiling below the equilibrium price prevents the market from reaching equilibrium. This leads to a shortage as the quantity demanded exceeds the quantity supplied.

In perfect competition, the market consists of many small firms, each of which has no influence over the market price. They must accept the prevailing market price, making them price takers.

An increase in production costs shifts the supply curve leftward, generally raising the price and reducing quantity. Simultaneously, higher consumer income shifts demand rightward, potentially increasing price, but the net effect on quantity is ambiguous and often results in a lower equilibrium quantity.

Deadweight loss represents the loss of economic efficiency when the equilibrium outcome is not achieved. Taxes can create such inefficiencies by reducing the number of mutually beneficial transactions between buyers and sellers.

Diminishing marginal returns refers to the principle that as more of a variable input is added to fixed inputs, the additional output produced by each extra unit of input eventually declines. This concept is crucial for firms when deciding the optimal level of production.