Introduction to Economics

Comprehensive vocabulary flashcards covering microeconomic and macroeconomic concepts from the Introduction to Economics lecture notes.

Economics

A social science that studies the efficient allocation of scarce resources so as to attain the maximum fulfillment of unlimited human needs.

Microeconomics

A branch of economics concerned with the economic behavior of individual decision-making units such as households, firms, markets, and industries.

Macroeconomics

A branch of economics that examines the effects and consequences of aggregate behavior of all decision-making units, looking at the economy as a whole.

Positive Economics

An economic analysis concerned with facts and describing the world as it is, addressing questions of what was, what is, or what will be without value judgments.

Normative Economics

An economic analysis that deals with questions of what ought to be or what the economy should be, based on subjective value judgments and opinions.

Inductive Reasoning

A logical method of deriving an economic principle or theory by moving from facts to theories and from particular to general economic analysis.

Deductive Reasoning

A logical process of arriving at a particular or specific statement starting from a correct general statement, fundamental assumptions, or axioms.

Scarcity

The universal condition wherein the economic resources available to a society are finite or limited in supply relative to unlimited human material wants.

Free Resources

Resources whose available amount to a society is greater than the amount people desire at a zero price, such as sunshine.

Opportunity Cost

The amount or value of the next best alternative that must be sacrificed (forgone) in order to obtain one more unit of a product.

Production Possibilities Frontier (PPF)

A curve that shows the various possible combinations of goods and services that a society can produce given its resources and technology.

Law of Increasing Opportunity Cost

A principle stating that as an economy produces more of a product, the opportunity cost per unit of additional output increases, making the PPF concave to the origin.

Asymmetric Growth

Economic growth illustrated by a shift of the PPF along only one axis (the $Y$-axis or $X$-axis), resulting from an increase in productivity or technology in only one sector.

Capitalist Economy

An economic system in which all means of production are privately owned, production is guided by the profit motive, and government intervention is minimal.

Command Economy

An economic system (or socialistic economy) in which economic institutions engaged in production and distribution are owned and controlled by the state through central planning.

Mixed Economy

An economic system combining elements of capitalism and command economies, allowing the public and private sectors to co-exist.

Product Market

A market where final goods and services are transacted or exchanged between business firms, households, and governments.

Factor Market

A market where economic units transact factors of production (inputs), with resource-owning households selling inputs to business firms and governments.

Law of Demand

A principle stating that the price of a commodity and its quantity demanded are inversely related, ceteris paribus.

Normal Goods

Goods for which demand increases when consumer income rises, and decreases when consumer income falls.

Inferior Goods

Goods for which demand is inversely related to consumer income, decreasing as consumer income increases.

Substitute Goods

Goods that satisfy the same desire of a consumer, such that an increase in the price of one good causes an increase in demand for the other.

Complementary Goods

Goods that are jointly consumed, such that an increase in the price of one good leads to a decrease in demand for the other.

Price Elasticity of Demand

A measure of the responsiveness of quantity demanded to a change in price, calculated as the percentage change in quantity demanded divided by the percentage change in price.

Cross-Price Elasticity of Demand

A measure of the responsiveness of demand for one product to a change in the price of another product.

Law of Supply

A principle stating that, ceteris paribus, as the price of a product increases, the quantity supplied increases, and as price decreases, quantity supplied decreases.

Market Equilibrium

A market condition occurring when market demand equals market supply at a specific clearing price and quantity.

Utility

The satisfaction or pleasure derived from the consumption of a good or service, reflecting the product's power to satisfy human wants.

Law of Diminishing Marginal Utility (LDMU)

A principle stating that as the quantity of a commodity consumed per unit of time increases, the extra satisfaction derived from each successive unit decreases.

Indifference Curve

A curve showing different combinations of two goods that yield the exact same level of total utility or satisfaction to the consumer.

Marginal Rate of Substitution (MRS)

The rate at which a consumer is willing to give up units of one commodity for an extra unit of another while remaining on the same indifference curve.

Budget Line

A graphical representation of all combinations of two goods that a consumer can purchase given a fixed income and market prices, spending all income.

Production

The process of transforming inputs into outputs, or the act of creating value or utility in tangible goods or intangible services.

Production Function

A technical relationship showing the maximum output that can be produced with a given set of inputs and existing technology.

Fixed Inputs

Inputs whose quantities cannot readily be changed in the short run when an immediate adjustment in output is required, such as buildings and machinery.

Variable Inputs

Inputs whose quantities can be altered almost instantaneously in response to desired changes in output, such as unskilled labor.

Short Run

A period of production in which the quantity of at least one input is fixed and cannot be changed.

Law of Variable Proportions

The law stating that as successive units of a variable input are added to a fixed input, beyond some point the marginal product of the variable input declines.

Explicit Costs

Direct, out-of-pocket monetary expenses incurred for purchased inputs used in production, such as wages, materials, and rent.

Implicit Costs

The estimated monetary opportunity costs of using self-owned, non-purchased resources in the production process.

Economic Profit

The difference between total revenue and total economic cost, where economic cost includes both explicit and implicit costs.

Marginal Cost (MC)

The additional cost incurred by a firm to produce one extra unit of output, represented mathematically as $MC = \frac{dTC}{dQ}$.

Perfect Competition

A market structure characterized by many buyers and sellers, homogeneous products, perfect resource mobility, free entry and exit, and price-taking firms.

Shutdown Point

The operating condition where market price equals the minimum average variable cost ($P = \min AVC$), below which a firm minimizes short-run losses by ceasing operations.

Pure Monopoly

A market structure where a single firm is the sole producer of a product with no close substitutes, protected by completely blocked entry.

Natural Monopoly

A monopoly that arises from substantial economies of scale, allowing one large firm to produce at lower costs than multiple competing firms.

Monopolistically Competitive Market

A market structure characterized by relatively many firms selling differentiated products with easy entry, easy exit, and non-price competition.

Oligopoly

A market structure dominated by a few large, mutually interdependent firms, characterized by significant barriers to entry.

Gross Domestic Product (GDP)

The total market value of currently produced final goods and services within a country's domestic borders during a given period of time, usually one year.

Gross National Product (GNP)

The total market value of final goods and services currently produced by domestically owned factors of production in a given period of time, irrespective of location ($GNP = GDP + NFI$).

Net Factor Income (NFI)

The difference between factor income received by domestic citizens from abroad and factor income paid to foreigners domestically.

GDP Deflator

A broad measure of inflation calculated as the ratio of nominal GDP to real GDP multiplied by 100.

Consumer Price Index (CPI)

An indicator that measures the average change in prices paid by consumers over time for a representative, fixed market basket of goods and services.

Business Cycle

Recurrent short-term ups and downs in aggregate economic activity, characterized by boom, recession, trough, and recovery phases.

Frictional Unemployment

Brief periods of unemployment caused by voluntary job transitions, search time between jobs, seasonality, or new entrants entering the labor force.

Structural Unemployment

Unemployment resulting from a mismatch between the skills or locations of job seekers and the requirements or locations of available vacancies.

Cyclical Unemployment

Unemployment resulting from a deficiency in aggregate demand during economic contractions or recessions.

Demand-Pull Inflation

Inflation that occurs when aggregate demand for goods and services rises faster than aggregate supply, often described as too much money chasing too few goods.

Cost-Push Inflation

Inflation that arises from a continuous decline in aggregate supply due to increased wages, rising raw material costs, or supply shocks.

Shoe-Leather Cost of Inflation

The cost, time, and effort expended by individuals making frequent trips to banks to reduce cash balances in response to high inflation and nominal interest rates.

Menu Cost of Inflation

The cost incurred by firms to frequently change, reprint, and distribute updated price lists and product catalogs during periods of high inflation.

Monetary Policy

A macroeconomic policy conducted by a central bank involving the regulation of the money supply, credit management, and interest rates to achieve economic stability.

Fiscal Policy

The use of government spending, taxation, and public borrowing to influence aggregate demand, output, employment, and income distribution.