Comprehensive Economics and Market Structures Review for Students

Economics

Study of how people use limited resources to satisfy unlimited wants.

Scarcity

Limited resources vs unlimited wants.

Opportunity Cost

The next best alternative given up.

Trade-off

Choosing one thing means giving up something else.

Utility

Satisfaction gained from consuming a product.

Marginal Analysis

Comparing additional cost vs additional benefit.

Incentive

Motive to act; can be monetary or non-monetary.

Demand

Quantity consumers are willing to buy at different prices.

Law of Demand

Price ↑ quantity demanded ↓.

Supply

Quantity firms are willing to sell at different prices.

Law of Supply

Price ↑ quantity supplied ↑.

Equilibrium

Supply = demand; market-clearing price.

Surplus

Supply > demand; price goes down.

Shortage

Demand > supply; price goes up.

Elastic Demand

Sensitive to price changes.

Inelastic Demand

Not sensitive to price changes.

Perfect Competition

Many firms, identical products, no control over price.

Monopolistic Competition

Many firms, differentiated products.

Oligopoly

Few large firms dominate market.

Monopoly

One seller, high barriers to entry.

Natural Monopoly

Cheaper for one firm to supply entire market.

Fixed Cost

Cost that does not change with output.

Variable Cost

Cost that changes with output.

Total Cost

Fixed cost + variable cost.

Marginal Cost

Cost of producing one more unit.

GDP (Gross Domestic Product)

Value of all final goods + services produced in a country.

Nominal GDP

GDP with current prices.

Real GDP

GDP adjusted for inflation.

Unemployment Rate

Percent of labor force without jobs.

Inflation

Increase in overall price level.

Deflation

Decrease in price level.

CPI (Consumer Price Index)

Measures inflation.

Business Cycle

Expansion, peak, recession, trough.

Fiscal Policy

Government taxes & spending.

Monetary Policy

Central bank controls money supply & interest rates.

Frictional Unemployment

Between jobs.

Structural Unemployment

Skills don't match jobs.

Cyclical Unemployment

Due to economic downturn.

Seasonal Unemployment

Based on time of year.

Absolute Advantage

Produce more with same resources.

Comparative Advantage

Produce at lower opportunity cost.

Trade Deficit

Imports > exports.

Trade Surplus

Exports > imports.

Tariff

Tax on imports.

Quota

Limit on imports.

Exchange Rate

Price of one currency in terms of another.

Money Supply

Total money available.

Interest Rate

Cost of borrowing money.

Federal Reserve

Central bank of the US.

Open Market Operations

Fed buying/selling government bonds.

Expansionary Monetary Policy

Lower interest rates, increase spending.

Contractionary Monetary Policy

Raise interest rates, reduce spending.

Externality

Cost/benefit to third party.

Positive Externality

Benefit to others.

Negative Externality

Cost to others.

Public Goods

Non-excludable, non-rival.

Price Floor

Minimum price; causes surplus.

Price Ceiling

Maximum price; causes shortage.

Budget

Plan for income and spending.

Credit Score

Measure of creditworthiness.

Interest

Cost of borrowing money.

APR

Annual percentage rate.

Principal

Money borrowed/invested.

GDP Formula

C + I + G + (X-M).

Profit

Total revenue - total cost.

Unemployment Rate Formula

(Unemployed ÷ Labor force) × 100.

What causes a shortage?

Demand > supply at current price.

What is opportunity cost?

Next best alternative given up.

What is comparative advantage?

Lower opportunity cost.

What happens during inflation?

Prices rise, purchasing power falls.