Economics Unit 1 Vocab

Macroeconomics

Works on GDP, Inflation, Employment/Unemployment, aggregate demand, and Capacity of Economy. Basically the branch of economics that studies the structure, performance, behavior, and decision-making of an entire regional, national, or global economy as a whole, rather than focusing on individual markets or single consumers

Microeconomics

Works on Market, Effect on Prices of Goods, Labor Market, Consumer Behavior, and Supply of Good. Basically the branch of economics that studies how individual people, households, and businesses make choices to allocate scarce resources

Market Economy

Government stays out of economic matters, and Producers produce products according to supply and demand. Consumers are free to buy whatever they choose, Run by the “invisible hand”Competition and profit drive everything Can lead to unfair business practices, and Associated with laissez faire.

Economic system where decisions regarding production, investment, and distribution are guided by price signals created by the forces of supply and demand, rather than by central government planning

Capitalism

an economic system defined by the private ownership of the means of production (such as factories, land, tools, and intellectual property) and their operation for profit. The key terms are Private Ownership, Individual Initiative, Profit, and Competition

Innovation

the practical implementation of new or improved ideas, methods, products, or services that create, realize, or redistribute value

Command Economy

Karl Marx associated with it, and is a Centrally Planned Economy. Supply and demand have little effect on production, plus Citizens have very little freedom and no private property. Government determines what will be produced and who will produce it. People have very little incentive to be efficient or innovative , Role of consumers is very limited, and Often associated with communism. Often results in shortages and surpluses

an economic system where a central authority, typically the government, controls the production, pricing, and distribution of goods and services rather than relying on market forces like supply and demand

Traditional Economy

Revolves around family, andTends to remain stagnant and resistant to change. Custom, ritual, or habit determines what is produced. Communities typically have a low standard of living and lack modern conveniences. Particularly vulnerable to environmental disasters, and Often rural and farm-based

an economic system where production, distribution, and trade decisions are guided by customs, history, and time-honored beliefs rather than market demand or government planning

Mixed Economy / Socialism

Government steps in when it needs to regulate certain aspects of the economy. Producers can produce according to supply and demand but must follow government regulations. Consumers are free to buy what they choose but are subject to government regulations, Most flexible with some government intervention. Government steps in occasionally to make competition more fair. The key terms are Nationalization, Public Welfare, Taxation and Centrally Planned Economy

an economic system that combines elements of both a free-market capitalist economy and a planned/command socialist economy

Adam Smith

Laid the foundations of Modern Economics, and he argued that free trade / free market is better for a country than mercantilism, which is controlled by the king

Invisible Hand

It describes how individuals acting purely in their own self-interest can unintentionally promote the broader welfare and efficiency of society

First people make money, then other people buy those things, then Good businesses do well and bad businesses don’t do well, then lastly more money is made and everybody is better off, then back to making money.

Scarcity

fundamental and ongoing tension that confronts individuals, businesses, governments, and societies. But basically that Consumers have wants and needs, but do we have an unlimited amount of resources to fulfill these wants and needs? We study how individuals and societies satisfy their unlimited wants with limited resources 

Incentive

rewards or penalties that motivate and influence an individual's or organization's decisions and behaviors.

Land (Factors of Production)

All naturally occurring resources, including the earth's surface, water, air, soil, minerals, forests, oil, and climate, we get rent out of it

Labor (Factors of Production)

The physical and mental effort exerted by humans in the production process, including specialized skills and expertise, we get wages and salaries out of it

Capital (Factors of Production)

Man-made, durable goods used to produce other goods and services. in economics, financial money itself is a tool to acquire capital, not capital proper, we get interest out of it.

Inputs and Outputs

The resources and factors of production used to create goods and services, and the final products, goods, or services generated by that production process

Entrepreneurship

Combination of skill, ingenuity and willingness to take risks that is needed to create and run new businesses. his is considered the fourth factor once you have Land, labor and capital. You must be creative, passionate, and dedicated to yield a profit. They take risk knowing that they may fail. 

Opportunity Cost

When choosing between options, the value of the next best option (what you could have gotten instead), so basically the value of the next-best alternative you give up when you make a choice under conditions of scarcity

Trade off

What you are sacrificing to gain a benefit (what you pay with), the act of giving up one benefit or option to gain another, which happens because resources like time, money, and labor are limited (scarce).

Marginal

a little bit more or a little bit less

the next, additional, or incremental unit of consumption, production, or resource use. Instead of looking at total costs or total satisfaction, marginal thinking evaluates whether doing one more unit is worth the extra cost.

Sunk Cost Fallacy

are past costs that are irrelevant to decision making.

where an individual or business continues investing in a project, purchase, or endeavor simply because they have already spent unrecoverable resources (time, money, or effort) on it, even when cutting losses is the more rational choice.

Production Possibility Curve

a graphical model that shows the maximum possible output combinations of two goods or services an economy can produce when all its resources and technology are fully and efficiently utilized

The rules are The resources are fixed, All resources are fully employed, Only two things can be produced, and Technology is fixed

Free Rider

an economic market failure that occurs when people benefit from a shared resource, public good, or common-pool asset without paying for it or contributing to its upkeep

Negative Externalities

occurs when an economic activity, either production or consumption imposes an unintended, uncompensated cost on an uninvolved third party

Information Asymmetry

happens when one party in an economic transaction has more or better information than the other, creating an imbalance of power that can cause market failures.

Circular Flow Chart

a visual economic model that illustrates how money, resources, goods, and services move continuously between different sectors of an economy

Factor Market

an economic marketplace where businesses buy, rent, or hire the resources they need to produce goods and services.

Unintended Consequences

unexpected outcomes (either positive, negative, or both) that result from an action or decision that was not originally foreseen or intended

Cobra Effect

The Italian town of Abruzzi had a snake problem. So the mayor offered citizens money if they brought in a dead snake. Then people began to raise cobras and kill them for that money.

a situation where an attempted solution to a problem accidentally makes the problem worse because of how people game the reward system.

Specialization

Buyers and sellers are able to concentrate their efforts in areas where they have an advantage.

the strategy where individuals, businesses, or nations concentrate their labor and resources on producing a limited range of goods or services rather than trying to make everything themselves.

Consumer Sovereignty (The 7 fundamentals of a free market)

Buyers can exercise their dominance over what is produced by freely deciding whether to buy or not to buy

the economic principle that consumers hold ultimate power in a market economy by deciding which goods and services get produced

Voluntary Exchange (The 7 fundamentals of a free market)

When a buyer and seller agree to do their business together, each believes that the benefits outweighs the cost. Trade in which both people believe that what they get from the trade is worth more than what they traded.

the act of buyers and sellers freely and willingly engaging in market transactions without coercion, fraud, or heavy government interference

Regulation

government rules and legal controls that restrict who can enter a specific business (entry controls) and what prices or service standards they may charge (price controls)

Deregulation

the removal or reduction of government rules and restrictions within a specific industry, market, or the broader economy. It allows free-market forces

Protections

government policies and economic interventions designed to restrict international trade, shield local businesses from foreign competition, and promote domestic industries

Provisions

an amount of money a company sets aside from its profits to cover a probable future liability or expense whose exact timing or amount is uncertain.

Competition (The 7 fundamentals of a free market)

Sellers are free to attempt to get the business of others by offering the best deal, fighting for consumers and who comes out the best

Profit (The 7 fundamentals of a free market)

Sellers are free to attempt to maximize this. The money you make is yours, except for some taxes and very minimal tariffs

Private Property (The 7 fundamentals of a free market)

Buyers and sellers are free to won and use this.

a system where companies are owned and controlled by individuals or private groups rather than the state or government

Rule of Law (The Four institutes for Growth)

refers to a system where laws are clear, publicly known, stable, and enforced impartially across all members of society, including government officials and economic elites, thereby providing the legal certainty required for markets and investments to function

Stable Government (The Four institutes for Growth)

a political system that is intact, smoothly functioning, and characterized by consistent institutions, predictable policies, and a reliable rule of law.

Market Innovation/competition (The Four institutes for Growth)

the process of introducing new ideas, products, services, or business models to alter market structures, expand or create new markets, and change how business is conducted

Straight Line PPC

iRepresents constant opportunity cost, meaning resources are equally adaptable and perfect substitutes for either good.

Is a graphical representation showing a constant opportunity cost between two goods or services. As you increase the production of one good, you must sacrifice the exact same amount of the other good every single time. The trade-off ratio (slope) never changes along the line.

Bowed PPC

Represents increasing opportunity cost, more realistic.

an economic model showing the maximum combinations of two goods an economy can produce when all resources are used efficiently. As you produce more of one good, you must give up increasing amounts of the other good, increasing opportunity cost.

Causes of PPC shifts

represents a change in an economy's total productive capacity.

An outward shift means the economy can produce more of both goods because its overall capacity has increased

An inward shift means the economy’s maximum possible output has decreased

Market Failures

is a situation in which the allocation of goods and services by a free market is not efficient, leading to a net loss of economic value or a suboptimal outcome for society.

Instead of the "invisible hand" achieving balance through supply and demand, rational self-interest results in wasted resources, unfairness, or uncompensated harm

Public Good

a product or service that is both non-excludable (People cannot be prevented from using it, even if they do not pay for it.) and non-rivalrous (One person's use of the good does not reduce its availability or utility to anyone else)

Positive Externalities

when an economic activity (production or consumption) provides an uncompensated, beneficial "spillover" effect to an uninvolved third party

Calculating the PPC

Identify Two Points on the Curve, Calculate the Change in Each Good, then Divide to Find the Trade-off.

Opportunity cost of one unit of Good X = Δ𝑌/Δ𝑋

=𝑌1−𝑌2/𝑋1−𝑋2

Resource Market

is an economic marketplace where businesses and organizations purchase the factors of production they need to create goods and services

Regulatory Capture

a form of government failure where a regulatory agency, created to protect the public and consumer interest, instead advances the commercial or political agendas of the industries it is charged with overseeing