Microeconomics and Macroeconomics Key Terms

These flashcards cover key terms and concepts in microeconomics and macroeconomics to aid in exam preparation.

Scarcity

The limited nature of society's resources, where human wants are unlimited.

Opportunity Cost

The value of the next best alternative forgone when making a choice.

Decision-making

The process of making choices by weighing benefits and costs, often guided by incentives.

Production Possibilities Frontier (PPF)

A curve that shows the maximum possible output combinations of two goods when resources are limited.

Supply and Demand

The fundamental model of markets illustrating the relationship between the price of a good and the quantity supplied and demanded.

Elasticities

Measures how sensitive the quantity demanded or supplied is to changes in price.

Price Ceiling

A maximum price set by the government that can lead to shortages (e.g., rent control).

Price Floor

A minimum price set by the government that can lead to surpluses (e.g., minimum wage).

Impact of Taxation

The effect taxes have in shifting supply and demand, often raising prices and reducing quantity traded.

Externalities

Side effects of production or consumption that affect third parties, which can be positive or negative.

Perfect Competition

A market structure characterized by many small firms producing identical products.

Monopoly

A market structure where one firm dominates the market (e.g., a local water company).

Oligopoly

A market structure where a few large firms dominate the market (e.g., airlines).

Monopolistic Competition

A market structure with many firms selling differentiated products (e.g., clothing brands).

Factors of Production

Resources needed to produce goods/services, including land, labor, capital, and entrepreneurship.

Labor Markets

Where workers and employers interact, determining wages based on supply and demand.

Thinking at the Margin

Making decisions based on small incremental changes.

Entrepreneurship

The act of taking risks to start businesses and innovate, driving economic growth.

Incentives

Rewards or punishments that influence behavior towards certain actions.

Gross Domestic Product (GDP)

The total value of all final goods and services produced within a country in a year.

Inflation

The rate at which prices increase over time, impacting purchasing power.

Unemployment

The percentage of the labor force that is without jobs but actively seeking work.

Economic Growth

An increase in GDP through higher productivity, investment, and innovation.

Monetary Policy

Actions by the central bank to manage money supply and interest rates in the economy.

Fiscal Policy

Government spending and taxation decisions aimed at influencing economic activity.

Financial Markets

Platforms where investments are traded, enabling businesses to raise capital and investors to earn returns.

Financial Institutions

Organizations like banks that manage money supply and influence economic activity by lending.

International Trade

The exchange of goods and services across international borders, promoting specialization.

Comparative Advantage

When a country can produce a good at a lower opportunity cost than others, leading to specialization and trade.

Exchange Rates

The value of one currency relative to another, affecting trade dynamics.

Trade Agreements

Deals between countries aimed at reducing trade barriers.

Tariffs

Taxes imposed on imports to protect domestic industries.

Quotas

Limits on the quantity of imports to manage supply and boost local production.

International Organizations

Institutions like IMF and WTO that influence global trade and economic stability.

US Economic Conditions and Data

Economic reports guiding policy decisions and business strategies related to GDP, unemployment, and inflation.