Economics Vocab

Definitions

What are the 3 types of markets?

Command, Free market/Laissez-faire, and Traditional.

Demerit goods

Demerit goods will be over-provided, driven by high prices (high profits motives/incentives). They tend to have negative effects are unhealthy, degrading, or otherwise socially undesirable

Examples: Alcohol, pre-WW1, hard drugs

Merit goods

Merit goods are underprovided (only those that could afford them). Provides external benefits. Examples: education, health care, public parks.

Planned Economy/Command Economy

A central government either directly or indirectly sets output targets, incomes, and prices.

Positive Economics

Economics that can be backed up by statistics or information.

Normative Economics

Economics that are opinions (usually indicated through words such as would, could, should)

The Economic Problem

Given scarce resources how exactly do large complex societies go about answering the three basic economic questions.

Laissez-Faire Economy/Free Market Economy

Individuals and firm pursue their own self-interests without any central direction or regulation.

Consumer Sovereignty

The idea that consumers ultimately dictate what will be produced(or not produced) by choosing what to purchase(and what not to purchase).

3 Basic Economic Questions

What gets produced, how is it produced, for whom is it produced

LLCE stands for?

Land, Labour, Capital, Entrepreneurship.

PPC stands for?

Production Possibility Curve. Example: The more you want to produce one thing, you'll have to sacrifice the production of another. It is a curved line because there are always resources (LLCE) that can't be reused to make the other consumer goods or people who can't be trained. The actual economy will never be on this line on the curve or pretty much anywhere near always inside bc maximizing potential is complex and not always good for the good of people

Production

The process that transforms scarce resources into useful goods and services

Opportunity Cost

What we give up or forgo, when we make a decision or choice.

Capital goods

Goods used to produce other goods and services. A.K.A Financial Capital.

Consumer goods

Goods produced for present consumption.

Normal goods

Goods for which demand increases when consumer incomes increase.

Inferior goods

Goods for which demand decreases when consumer income increase.

Luxury goods

Goods with a high income elasticity of demand (YED); YED is greater than one. For example, if your income increase by 5% and your demand for mobile phones increased 20% then the YED of mobile phones = 20/5 = 4.0.

PPF

Production Possibility Frontier

Public goods

Goods that consumers typically have no incentive to pay for these goods because they could get a free ride when others pay.

Investment

The process of using resources to produce new capital. Capital is the accumulation of previous investment.

Stocks

Stock refers to any quantity that is measured at a particular point in time

Flows

Flow is referred to as the quantity that can be measured over a period of time.

Entrepreneurship

The process of developing, organizing, and running a new business to generate profit while taking on financial risk.

Land

Naturally occurring resources as well as geographic land.

Labour

A commodity that is supplied by labourers, usually in exchange for a wage paid by demanding firms.

Profit

Determined by adding up all financial revenues and subtracting all the costs.

GDP

Gross Domestic Product (GDP) are the value of final goods and services produced and sold by a country in a certain time period 

Economic prediction

A prediction of a general direction of what events will occur 

Economic forecast

A prediction with accuracy and detail 

Free Goods

Good with no opportunity cost (economists aren't interested in this) 

Economic goods

Good with opportunity cost (economists are interested in this) 

Mixed Systems

Mixture of command and free economies