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Economics
The study of how societies allocate scarce resources to meet their unlimited and ever growing amount of needs and desires.
Ex: How governments allocate a limited tax fund on an infinite amount of citizen needs.
Individual Choice
Decisions made by individuals on how to allocate their limited resources.
Ex: Saving money or spending it on something you want.
Economy
The system of production, consumption, and distribution of goods and services within a society.
Ex: Look at the economy of the US, it encompasses all the businesses and companies, individuals, and organizations.
Market Economy
An economic system where decisions about production and consumption are guided by prices and the interactions of individuals in the marketplace.
Ex: The U.S. economy, where market forces of supply and demand determine prices and quantities of goods and services.
Resource
AKA Factor of Production, inputs used to create an end product.
4 Factors = Land, Labor, Capital, & Entrepreneurship
Land
Natural resources and features used as an input.
Ex: oil, water, wood, air, metals, etc
Labor
Human effort used in the production of goods and services.
Ex: Literally any job
Capital
The stuff needed to make the end product, falls into Financial (money), Physical (tangible), and Human (education) Capital.
Entrepreneurship
The ability to combine resources to satisfy society’s needs, wants, and desires.
Ex: Levi Strauss capitalizing on denim pants production during the Gold Rush.
Scarce
Limited and wanted.
Ex: There is a finite supply of oil and we have unlimited needs and wants for it.
Opportunity Cost
The cost for your next best alternative (what you give up to choose this).
Ex: The opportunity cost for me to go to school is 8 hours of sleep.
Microeconomics
The branch that focuses on smaller-scale economics such as individuals and business decision-making.
Macroeconomics
Examines the economy as a whole, focusing on aggregate indicators and the overall economic performance.
Economic Aggregates
A measure that describes the economy’s overall performance.
Positive Economics
Focuses on objective analysis and factual statements; focusing on what is than rather what ought to be.
Normative Economics
Focuses on subjective judgements and recommendations about economic policy; focusing on what the economy should be rather than what it is.
Business Cycle
The natural rise and fall of economic growth over time.
Depression
A prolonged and severe downturn in economic activity.
Ex: Great Depression
Recession
Periods of economic decline typically indicated by two consecutive quarters of negative GDP growth.
Ex: 2008 Housing Bubble
Expansions
Periods of increasing economic activity and growth in GDP.
Ex: US economy “booming” after WW2.
Employment
Being actively engaged with a paid job in the workforce.
Unemployment
Not within the workforce and seeking work; jobless.
Labor Force
The total count of people employed plus the pool of those seeking employment.
Unemployment Rate
The percentage of the labor force that is unemployed.
Output
The total amount of goods and services produced in an economy.
Aggregate Output
The total output of goods and services produced in an economy over a specific period.
Ex: GDP of a nation.
Inflation
The rate at which the general level of prices for goods and services is rising.
Deflation
The decline in the general price level of goods and services.
Price Stability
When the prices in an economy do not change significantly over time.
Economic Growth
The increase in the economy's capacity to produce goods and services over time.
Ex: An GDP growth of 2% annually indicates growth.
Model
An abstraction of reality used to explain and predict economic phenomena.
Other Things Equal Assumption
Assuming that all other variables remain constant when analyzing the effect of a singular one.
Trade-Off
Giving up one benefit to have another.
Ex: “Guns” vs. “Butter”
Production Possibilities Curve
Graph that shows the production of two goods that can be produced with available resources and technology.
Efficient
When resources are utilized correctly, minimizing waste and maximizing output.
Technology
Tools, machines, knowledge all enhance productivity and aid services.
Ex: The assembly line at a car plant has revolutionized how fast cars can be made.
Trade
Exchange of goods or services between individuals or nations.
Gains from Trade
Benefits obtained from trading goods and services; producing beyond one’s PPC results in this from trading.
Specialization
Focusing on the specific production of a limited range of goods or services to increase efficiency and productivity.
Comparative Advantage
Producing goods or services at a lower opportunity cost compared to another competitor.
Absolute Advantage
Producing more of a good or service compared to another competitor using the same amount of resources.
Competitive Market
A market structure where many firms compete each other and no single firm has a monopoly on the market price.
Supply and Demand Model
A model that demonstrates how prices and quantities of goods and services are determined in a market economy through the amount of the item and want of it.
Demand Schedule
A table that shows the quantity of a good or service and prices that the consumer is willing to buy them at.
Quantity Demanded
The amount of a good or service that consumers are willing to buy at specified price.
Demand Curve
A graph that shows the demand schedule, demonstrating the relationship between good price and quantity demanded.
Law of Demand
Principle that as the price of a good decreases, the quantity demanded increases, and conversely, as the price of a good increases, the quantity demanded decreases.
Change in Demand
A shift in the demand curve due to other confounding variables or factors such as income changes or loss of interest.
Movement Along the Demand Curve
Change in the quantity demanded due to a change in the price of the good, shown as movement along the existing demand curve.
Substitutes
Goods that replace each other; increasing the price of one good increases the demand for its substitute.
Complements
Goods that are consumed together; increasing the price of one good decreases demand for its complement.
Ex: Cereal complements milk, but as milk grows more expensive cereal will fall in demand.
Normal Good
A good where demand increases as consumer incomes rise.
Inferior Good
A good where demand decreases as consumer incomes rise.
Ex: foregoing the generic brand of food at the store for the better tasting name brand as you have more money to spend on food.
Individual Demand Curve
Curve showing the quantity of a good or service that an individual is willing to buy at different prices.
Quantity Supplied
The amount of a good or service that producers are willing to sell at a specific price.
Supply Schedule
A table showing the quantity of a good or service that producers are willing to sell at different prices.
Supply Curve
A curve of the supply schedule, showing the relationship between the price of a good and the quantity supplied.
Law of Supply
As the price of a good increases, the quantity supplied increases, conversely, as the price falls, the quantity supplied also falls.
Change in Supply
A shift in the supply curve due to confounding variables or other factors like change in production technology or rising material prices for inputs.
Movement Along the Supply Curve
Change in amount supplied due to change in price of the good, which is seen as movement along the existing supply curve.
Input
Resources used in in the production of goods and services
Individual Supply Curve
A curve that shows the quantity of a good that a single producer is willing to supply at different prices.
Equilibrium
A point in market condition where quantity demanded equals quantity supplied, resulting in no price change.
Equilibrium Price
The price point where the quantity of the good demanded by consumers equals quantity supplied.
Market-Clearing Price
Akin to Equilibrium Price, price-point where there is neither a surplus nor shortage in the market for a good.
Equilibrium Quantity
The amount of a good or service that is consumed at the equilibrium price.
Surplus
Situation in which the quantity supplied exceeds demand at a given price.
Shortage
A lack of the necessary quantity supplied to meet the demanded quantity at a given price.
Price Controls
Government instated limits on the minimums or maximums of prices that can be charged in a market.
Price Ceilings
The maximum price for a good or service as set by the government,
Price Floors
The minimum price for a good or service as set by the government.
Minimum Wage
Lowest legal wage that employers can pay their employees.
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