Principles of Basic Economics Lecture Notes

A set of vocabulary-style flashcards covering fundamental economic concepts, including efficiency, market behaviors, price controls, and utility theory based on the provided lecture notes.

Technological Advancement (Sectoral Labor Shift)

The process where advances in technology allow an industry to produce goods using fewer workers, releasing surplus labor that moves into other growing sectors, such as $20$ century agriculture tractors replacing manual labor and moving workers into manufacturing.

Productive efficiency

Producing the maximum possible output using available resources and technology with zero waste, represented by any point lying directly on the production possibilities frontier (PPF) curve.

Ceteris paribus

A Latin phrase meaning "all other things held constant," essential for isolating the exact cause-and-effect relationship between two variables, such as studying how a price increase affects soda demand while assuming income and weather remain the same.

Decisions made at the margin

The process of making choices by comparing the additional (marginal) benefit of one more unit of an activity against its additional (marginal) cost, such as weighing a $5\%$ grade boost against losing $1$ hour of sleep.

Rationing device

A mechanism used to distribute scarce goods because human wants exceed available resources; examples include dollar price, first-come-first-served, and lottery.

Positive economics

A branch of economics that deals with objective facts and "what is," such as the statement that an increase in cigarette taxes reduces sales.

Normative economics

A branch of economics that deals with value judgments, opinions, and "what should be," such as the statement that the government should raise cigarette taxes to discourage smoking.

Surplus

A market condition occurring when price is above equilibrium and Quantity Supplied exceeds Quantity Demanded (e.g., sellers supply $500$ pairs of shoes at $100$ but buyers only demand $200$), causing sellers to lower prices to clear inventory.

Shortage

A market condition occurring when price is below equilibrium and Quantity Demanded exceeds Quantity Supplied (e.g., buyers demand $1,000$ tickets at $30$ but only $300$ exist), leading buyers to bid the price up.

Supply Curve Shift (Refrigerators)

An occurrence where lower prices and higher sales are caused by a rightward shift of the entire supply curve due to technological improvement, rather than a movement along a downward-sloping supply curve.

Price ceiling

A legal maximum price set below the equilibrium price, resulting in effects such as shortages, non-pricing rationing (long lines), and black markets.

Price floor

A legal minimum price set above the equilibrium price, resulting in surpluses (excess goods) and fewer exchanges because buyers purchase less at the higher price.

Narrowly defined product elasticity

Products that have many close substitutes, making their demand elastic; for example, the $honda\,Civic$ is elastic because buyers can switch to the $toyato\,corolla$.

Broadly defined product elasticity

Products that have few substitutes, making their demand inelastic; for example, the category of "vehicle" is inelastic because there are few alternatives.

Elasticity along a straight-line demand curve

Price elasticity varies by position: demand is elastic at upper prices, unit elastic at the midpoint, and inelastic at lower prices.

Consumer equilibrium and Law of Demand

The state where a consumer balances spending so that if the price of Good X ($Px$) rises, they buy less of it to increase its marginal utility ($MUx$), which directly supports the Law of Demand.

Diamond-water paradox

The observation that essential water is cheap while non-essential diamonds are expensive because price depends on marginal utility (value of one extra unit) rather than total usefulness.

Total utility

The total satisfaction derived from consuming all units of a good, such as receiving $50$ total units of happiness from eating $3$ slices of pizza.

Marginal utility

The extra satisfaction gained from consuming one more unit of a good, such as the $3rd$ slice of pizza adding $10$ units of happiness.

Substitutes

Goods where an increase in the price of one (Good X) leads to an increase in the quantity demanded of another (Good Y) because they move in the same direction.