Introduction to Economics: Key Vocabulary

These flashcards cover foundational vocabulary from the lecture notes on scarcity, opportunity cost, supply and demand, the business cycle, and the 2008 Global Financial Crisis.

Scarcity

The economic concept where individuals  must allocate limited resources to satisfy their needs

Opportunity Cost

The foregone benefit that would have been enjoyed when a choice is made.

Incentives

Factors—such as potential gains or avoided costs—that motivate individuals, firms, or governments to take specific economic actions.

Macroeconomics

The branch of economics that studies the overall economy, including aggregate markets, national output, employment, and policy.

Microeconomics

The branch of economics that examines individual decision-makers—households and firms—and how they respond to changes in prices and incentives.

Inflation

A sustained rise in the general price level, eroding the purchasing power of money over time.

Unemployment

The situation in which people actively seeking work are unable to find employment.

Gross Domestic Product (GDP)

The total monetary value of all final goods and services produced within a country during a specific period.

Business Cycle

The recurring pattern of expansion, boom, contraction, and recession in economic activity over time.

Expansion

A phase of the business cycle characterized by rising production, employment, income, and demand.

Boom (Peak)

The highest point of the business cycle where output, employment, and wages reach maximum levels before a slowdown.

Contraction

A phase of the business cycle marked by slowing growth, falling output, and declining consumer spending.

Recession

A significant decline in economic activity lasting more than a few months, typically featuring high unemployment and reduced spending.

Global Financial Crisis (GFC) 2008

A worldwide economic downturn triggered by the collapse of the U.S. housing market and subprime mortgage losses, leading to global credit freezes and recessions.

Subprime Mortgage

A high-risk home loan granted to borrowers with poor credit histories, central to the 2008 financial crisis.

Mortgage-Backed Security (MBS)

A financial product consisting of a bundle of home loans sold to investors, whose value plummeted during the GFC.

Credit Crunch

A sudden reduction in the general availability of loans or credit, heavily felt during the 2008 crisis.

Stimulus Package

Government spending and tax measures intended to boost economic activity during downturns.

Supply

The quantity of a good or service producers are willing and able to offer for sale at various prices over a period.

Law of Supply

The principle that the quantity supplied rises as the price rises and falls as the price falls.

Demand

The quantity of a good or service consumers are willing and able to purchase at various prices over a period.

Law of Demand

The principle that the quantity demanded falls as the price rises and rises as the price falls.

Market Equilibrium

The price and quantity at which quantity supplied equals quantity demanded, with no pressure for change.

Change in Demand

A shift of the entire demand curve caused by factors other than price, such as tastes, income, or expectations.

Change in Supply

A shift of the entire supply curve due to non-price factors like technology, input costs, or number of sellers.

Increase in Demand

A rightward shift of the demand curve, raising both equilibrium price and quantity.

Decrease in Demand

A leftward shift of the demand curve, lowering both equilibrium price and quantity.

Increase in Supply

A rightward shift of the supply curve, lowering equilibrium price and raising quantity.

Decrease in Supply

A leftward shift of the supply curve, raising equilibrium price and lowering quantity.

Substitute Good

A product that can be used in place of another; a rise in its price can increase demand for the related good.

Reserve Bank of Australia (RBA)

Australia’s central bank, which cut interest rates sharply to support the economy during the GFC.

Price Mechanism

The interaction of supply and demand that determines prices and allocates resources in a market economy.

Cost of Production

Total expenses incurred in creating a product, influencing firms’ willingness to supply.

Consumer Confidence

The degree of optimism that consumers feel about the overall economy, affecting their spending behavior.