Economics Unit 1

Economics

The study of how people make choices under scarcity (limited resources).

Scarcity

A situation in which resources are limited, necessitating choices about their use.

Opportunity Cost

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

Production Possibilities Frontier (PPF)

A graph showing the maximum feasible production combinations of two goods.

Economic Growth

Increase in an economy’s production of goods and services.

Circular Flow Model

Describes the movement of money and resources between households and firms.

Marginal Benefit

The additional satisfaction gained from consuming one more unit.

Marginal Cost

The cost of producing one additional unit of a good.

Positive Analysis

Objective, fact-based analysis.

Normative Analysis

Subjective analysis based on opinions or value judgments.

Incentive

A factor that motivates individuals to take action or make a choice.

Correlation

A relationship between two variables.

Causation

When one variable directly causes changes in another.

Fallacy of Composition

The mistaken belief that what is true for an individual is also true for the group.

Market

A system where buyers and sellers exchange goods and services.

Law of Demand

As price decreases, quantity demanded increases (and vice versa).

Normal Goods

Goods for which demand increases as income increases.

Inferior Goods

Goods for which demand decreases as income increases.

Market Equilibrium

The point where the quantity demanded equals the quantity supplied.

Shortage

A situation where demand exceeds supply.

Surplus

A situation where supply exceeds demand.

Relative Poverty

Poverty measured in relation to others in society.

Absolute Poverty

A condition where basic needs cannot be met.

Poverty Line

A threshold defining the minimum income needed to meet basic living needs.

Poverty Rate

The percentage of people living below the poverty line.

Poverty Gap

The difference between the poverty line and the income of those living in poverty.

Cash Transfers

Direct financial assistance provided to individuals.

In-Kind Transfers

Non-cash benefits like food stamps or Medicaid.

Gini Coefficient

A measure of income inequality, with 0 being perfect equality and 1 being perfect inequality.

Wealth Inequality

Measures the distribution of assets and disparities in wealth accumulation.

Capital Gains Tax

A tax on profits from investments that affects income distribution.

Intergenerational Income Elasticity

The degree to which income is passed down across generations.

GDP

The total output produced within a country.

GNP

The total income of a country's residents, including income from abroad.

GNI

GDP plus net income received from other countries.

Capital-Intensive Technology

Technologies that require significant capital investment.

Labor-Intensive Technology

Technologies that require significant human labor.

Investment in Human Capital

Investments in education, training, and healthcare to improve productivity and well-being.