Economics Fundamentals Vocabulary Flashcards

Vocabulary practice flashcards generated from lecture notes covering key economic concepts, goals, market types, PPC models, trade advantages, and demand factors.

Gross Domestic Product (GDP)

The total value of goods and services produced within a nation's borders in one year.

Inflation

The rising general level of prices, which lessens the value of the dollar.

Unemployment

The state of people who are willing and able to work but cannot find a job.

Healthy Economic Vital Signs

Target metrics for a healthy economy consisting of a GDP growth rate of $3\text{-}4\%$, inflation of $1\text{-}2\%$ (maybe up to $3\%$), and unemployment of $4\text{-}5\%$.

Economics

The study of how societies allocate limited resources to satisfy unlimited wants.

Microeconomics

The study of small economic units such as individuals, firms, and industries.

Macroeconomics

The study of the big picture and overall economy.

Positive Economics

An objective analysis based on facts.

Normative Economics

A subjective analysis based on value judgments.

Consumer Goods

Tangible items created for direct consumption.

Capital Goods

Items used to create other goods and services.

Factors of Production

The four main production resources: Land (natural resources), Labor (people's abilities and efforts), Capital (tools used in business), and Entrepreneurship (a person willing to take risks to start a business for profit).

Opportunity Cost

The most desirable alternative given up when making a choice.

Marginal Decision Rule

The rule for economic choices stating: if $MC < MB$, do it; if $MC > MB$, don't do it; and if $MC = MB$, optimal balance is reached.

Three Basic Economic Questions

The fundamental questions every economic system must answer: What? How? For Whom?

GEESE Fly South

A mnemonic for the seven economic goals: Growth, Efficiency, Employment, Security, Equality, Freedom, and Stability.

Command Economy

An economic system controlled by the government characterized by no private property and a focus on the common good.

Market Economy

An economic system directed by the people characterized by private property, profit motive, individual freedom, and government laissez-faire policy.

Laissez Faire

An economic principle where the government stays out of market activities.

The Invisible Hand

Adam Smith's concept that society's goals will be met as individuals seek their own self-interest, regulated by competition and self-interest.

Production Possibilities Curve (PPC)

A model simplifying the economy into two products to show resource allocation; operating on the curve uses 100% of resources, inside is inefficient, and beyond is impossible.

Constant Opportunity Cost

Occurs when the PPC is a straight line because the products are similar and the resources used in production are interchangeable.

Increasing Opportunity Cost

Occurs when the PPC is bowed outward because the products are different and the resources used in production are not interchangeable.

Law of Increasing Opportunity Costs

The rule stating that as you increase the production of one good, you will give up more and more units of the second good.

Absolute Advantage

The condition of being able to produce a good using fewer resources or produce a greater total quantity.

Comparative Advantage

The condition of producing a good at the lowest opportunity cost, which serves as the basis for trade.

Demand

The quantities of goods that consumers are willing and able to buy at different prices.

Law of Demand

The principle stating there is an inverse relationship between price and quantity demanded.

Five Shifters of Demand (TIRE#)

The five factors that cause a change in demand: Tastes, Income, Related goods, Expectations, and Number of buyers.

Normal Goods

Goods for which demand increases when income increases ($I \uparrow \Rightarrow D \uparrow$) and demand decreases when income decreases ($I \downarrow \Rightarrow D \downarrow$).

Inferior Goods

Goods for which demand decreases when income increases ($I \uparrow \Rightarrow D \downarrow$) and demand increases when income decreases ($I \downarrow \Rightarrow D \uparrow$).

Substitutes

Pairs of goods (such as Coke & Pepsi) where an increase in the price of Good A leads to an increase in demand for Good B ($P_A \uparrow \Rightarrow D_B \uparrow$).

Complements

Pairs of goods (such as Chips & Salsa or Hot dogs & buns) where an increase in the price of Good A leads to a decrease in demand for Good B ($P_A \uparrow \Rightarrow D_B \downarrow$).