Economics Foundations, Supply and Demand, and GDP Vocabulary Flashcards

Vocabulary flashcards covering the five foundations of economics, positive vs. normative analysis, the supply and demand framework, and GDP key terms.

Economics

The study of how individuals and societies allocate their limited resources to satisfy their practically unlimited wants.

Scarcity

The fundamental economic problem regarding the limited nature of society's resources relative to practically unlimited wants.

Microeconomics

The study of individual households, firms, and specific markets.

Macroeconomics

The study of economy-wide phenomena, including output, employment, and the overall price level.

Direct Incentives

Factors explicitly designed to motivate an immediate, specific action, such as extra credit or merit-based scholarships.

Indirect Incentives

Unintended secondary effects or consequences resulting from a primary incentive, such as lower gasoline prices encouraging increased driving.

Opportunity Cost

The highest-valued alternative that must be given up to engage in an activity.

Marginal Thinking

The evaluation of whether the additional benefit of an action (marginal benefit) outweighs its additional cost (marginal cost).

Positive Statement

An objective statement about what is, which can be tested and validated using facts or data without expressing a value judgment.

Normative Statement

A subjective statement expressing an opinion or value judgment about what should happen, often containing words like 'should' or 'ought to.'

Quantity Demanded

The amount of a good or service that consumers are willing and able to buy at any given price.

Law of Demand

The principle that, holding all else constant (ceteris paribus), as the price of a good decreases, the quantity demanded increases.

Ceteris Paribus

A Latin phrase meaning 'all else equal' or holding all other variables constant.

Normal Good

A good for which consumer demand increases as income rises.

Inferior Good

A good for which consumer demand decreases as income rises.

Substitutes

Two goods where an increase in the price of one leads to an increase in the demand for the other.

Complements

Two goods consumed together where an increase in the price of one leads to a decrease in the demand for the other.

Quantity Supplied

The amount of a good or service that sellers are willing and able to produce and bring to market at any given price.

Law of Supply

The principle that, holding all else constant, a higher price elicits a greater quantity supplied.

Market Equilibrium

The price and quantity point where quantity supplied equals quantity demanded ($Q^S = Q^D$), leaving no tendency for price or quantity to change.

Surplus

A condition in which the quantity supplied of a good exceeds the quantity demanded, occurring when price is set above the equilibrium price ($P > P^*$).

Shortage

A condition in which the quantity demanded of a good exceeds the quantity supplied, occurring when price is set below the equilibrium price ($P < P^*$).

Gross Domestic Product (GDP)

The market value of all final goods and services produced within a nation during a specific period of time.

Per Capita GDP

Gross domestic product divided by the population of a country, serving as a measure of average living standards.

Real GDP

Gross domestic product adjusted for changes in prices or inflation across time.

Nominal GDP

Gross domestic product calculated using current market prices without adjusting for inflation.

Business Cycle

Short-run fluctuations in economic activity around an economy's long-term growth trend.

Intermediate Goods

Goods used in the production process of a final good that are not counted separately in GDP to avoid double counting.

Final Goods

Goods sold directly to final users and included in the calculation of GDP.

Value Added

The difference between the sale price of a final or intermediate good and the cost of the intermediate inputs used to produce it.

Durable Goods

Goods consumed over a long period with an average lifespan of at least three years, such as cars and appliances.

Nondurable Goods

Goods consumed in less than three years, such as food, clothing, and fuel.

Investment ($I$)

Private spending on the tools, plant, equipment, new housing, and additions to business inventories used to produce future output.

Net Exports ($NX$)

Total exports minus total imports ($NX = \text{Exports} - \text{Imports}$) within the expenditure measure of GDP.

GDP Deflator

A price level index used to adjust nominal GDP to measure real GDP, defined as $\left(\frac{\text{Nominal GDP}}{\text{Real GDP}}\right) \times 100$.

Underground Economy

Unreported legal transactions and illegal economic activities that are excluded from official GDP figures.