Introduction to Economics (Pages 1-7)

Vocabulary flashcards covering key economic concepts from the lecture notes (Pages 1–7).

Positive economics

The branch of economics that describes and explains economic phenomena as they are, using facts and evidence.

Normative economics

Judgments about what ought to be; value-based statements about what should happen.

Macroeconomics

Study of the economy as a whole and its aggregates (e.g., total output, unemployment, inflation).

Aggregates

Broad totals that summarize performance of the economy  (consumers, businesses, government, trade)

Microeconomics

Study of individual units—firms, households, and specific markets.

Ceteris paribus

Latin phrase meaning all other things equal; assumption that nothing else changes.

Fallacy of Composition

What is true for a part is not necessarily true for the whole; e.g., what helps one person may not help everyone.

Post Hoc Fallacy

Assuming that if A occurred before B, A caused B (A precedes B).

Correlation does not imply causation

A relationship between two variables does not prove that one causes the other.

Scarcity

Limited resources relative to unlimited wants; fundamental economic problem.

Unlimited Wants

Humans desire a wide and potentially endless array of goods and services.

Utility

Satisfaction or usefulness obtained from consuming goods or services.

Value

Worth assigned to an item based on scarcity and utility.

Economic Resources (Factors of Production)

Inputs used to produce goods/services; scarce resources.

Land

Gifts of nature; natural resources used in production.

Capital

Not money; man-made inputs used to produce goods/services (investments, equipment, factories).

Labor

Human physical and mental effort used in production.

Entrepreneurial Ability

Entrepreneurs organize resources to create or improve products; earn profit.

Rental income

Income earned from land resources.

Interest income

Income earned from capital (investment in capital goods).

Wages

Income earned by supplying labor.

Profit

Income earned by entrepreneurial activity after costs.

Economics (definition)

The study of how society allocates scarce resources among unlimited wants.

Full employment

All available resources are used; no idle labor or capital.

Full production

All employed resources are used to maximize satisfaction; involves productive and allocative efficiency.

Productive efficiency

Producing at the lowest possible cost.

Allocative efficiency

Producing goods/services most desired by society.

Production Possibilities Curve (PPF)

Graph showing the maximum feasible combinations of two goods with given resources and technology.

Economic growth

Outward shift of the PPF; more resources or better efficiency.

Law of Increasing Opportunity Costs

OC increases as more of one good is produced; PPF is concave.

Economic Systems

Ways societies organize production and distribution; balance between markets and government.

Mixed Economy

Economy with both market forces and government intervention.

Pure Command Economy

Economy where the government makes major economic decisions (centrally planned).

Laissez-faire

Economic philosophy favoring minimal government intervention; free markets.

Traditional Economy

Economic decisions guided by ritual, habit, and custom.

Three Basic Economic Questions

What to produce, how to produce, and for whom to produce.

Circular Flow Model

simplified diagram of how households, firms, and government interact through markets.

Households

Individuals who consume goods/services and supply factors of production.

Businesses (Firms)

Entities that produce goods/services and demand resources.

Government

Public sector that imposes taxes and provides public goods and services in the economy.

Resource Market (Factor Market)

Market where households supply resources (land, labor, capital) and earn income.

Product Market

Market where firms supply goods/services and households purchase them.

Expenditures

Outlays by households and firms in the product market (consumption and investment).

Revenues

Income firms receive from selling goods/services.

Net Taxes

Taxes collected by government minus transfers; funds government spending.