Macroeconomics Unit 1: Basic Economics Concepts

Scarcity

The economic problem of having unlimited human wants with limited recourses.

Consumer Goods

Products manufactured for direct consumption by consumers

Capital Goods

Goods used to produce other goods and services.

Trade-Offs

Sacrificing all of the other choices to gain another choice

Opportunity Cost

The next best alternative that isn’t chosen when making a decision.

Centrally Planned Economics

An economic system where the government makes all decisions regarding the production and distribution of goods and services.

Free Market Economics

An economic system where prices are determined by unrestricted competition between privately owned businesses.

Mixed Economies

Economic systems that combine elements of both free market and centrally planned economies, allowing for a blend of private and public sector involvement.

Constant Opportunity Cost

Increasing Opportunity Cost

The Law of Demand

As the price of a good decreases, the quantity demanded increases, and vice versa, all else being equal. Inverse relationship

The Law of Supply

As the price of a good increases, the quantity supplied increases, and vice versa, all else being equal. Direct relationship.

Change in quantity demanded

Movement along the demand curve due to a change in the price of the good

Change in demand

Shift of the entire demand curve due to factors other than price, such as consumer preferences or income changes.

The five shifters of supply

Prices of factors of production, technology, number of sellers, seller expectations, and government policies.

The five shifters of demand

Consumer income, consumer preferences, prices of related goods, expectations of future prices, and number of buyers.

Substitutes

Goods that can replace each other in consumption, where an increase in the price of one leads to an increase in demand for the other.

Compliments

Goods that are consumed together, where an increase in the price of one leads to a decrease in demand for the other.

Normal Goods

Goods for which demand increases as consumer income rises, and decreases as income falls.

Inferior Goods

Products that people buy less of when their income increases.

Surplus

When there’s more supply than demand

Shortage

A situation where demand exceeds supply, leading to insufficient goods available for consumers.

Price Ceiling

A government-imposed limit on how high a price can be charged for a product, intended to keep prices affordable for consumers.

Price Floor

A government-imposed minimum price that must be paid for a good or service, aimed at ensuring producers receive a fair price.

Subsidy

A financial assistance provided by the government to support a specific economic sector, lowering the cost of production and encouraging supply.

Double shift rule

might be indeterminate

Investment

Commitment of resources to achieve later benefits

Capital Stock

The value of physical assets a company uses in production, including machinery, buildings, and equipment.

Specialization

Allows for countries to reach higher productivity rates

Outputs acronym

Other goes Over, O.O.O.

Inputs acronym

Other goes under, I.O.U.

Opportunity Cost

calculate by using IOU or OOO

Recession

A period of temporary economic decline during which trade and industrial activity are reduced. We have the people, but not the ability.