Principles of Economics Flashcards

Vocabulary flashcards covering core economics concepts and principles from the introductory lecture notes.

Microeconomics

The study of how households and firms make decisions.

Macroeconomics

The study of the overall economy.

Oikonomos

Meaning "household manager"; refers to how households face decisions regarding resources, tasks, and individual skills.

Scarcity

The state in which society has limited resources and cannot produce all goods and services, meaning not every member can be satisfied.

Economics

The study of how societies manage scarce resources.

10 principles of economics : how people make decisions

Trade off, cost of things, rational people think at a margin, people are influenced by incentives.

Trade off

Set amount of time/money/resources you can use-leads to prioritization

Ex: save money for retirement or use money on a vacation

Efficiency

Getting the best benefits from society's scarce resources.

Equality

Distributing economic benefits evenly among society's members.

cost of things

Has opportunity cost and can be explicit or implicit

Opportunity cost

Whatever item you give up to get something else.

Rational people think at a margin

Assume everyone is rational

Want marginal benefits to outweigh marginal cost

Marginal change

Incremental adjustments to an existing plan.

People respond to incentives

Buyers consume less = sellers produce more

Ex:

If prices of apple rise, consumers buy less, forces firms to hire to more workers to collect more to sell making prices go down

Incentive

Something that induces someone to act through a reward or punishment.

10 principles of economics: how people interact

Trade makes everyone better off, markets help organize economic activity, government can sometimes help market outcomes

Trade makes everyone better

Leads to specialization

Market economy

An economy where firms decide who to hire and what to make, and households decide where to work and what to buy.

Property rights

The ability of individuals to own and control scarce resources.

Market failure

A situation in which a market does not produce an efficient allocation of resources on its own.

Externality

The impact of a person's actions on the well-being of a bystander.

Market power

The ability of a single person or firm to unduly influence market prices.

10 principles ef economics: how economy works

Countries standard of living depends on the ability to produce goods and services, prices rise when government prints too much money, society faces short-run trade off between inflation and unemployment

Countries standard of living depends on the ability to produce goods and services,

Leads to productivity

Productivity

The amount of goods and services produced by each unit of labor input.

Inflation

An increase in the overall level of prices in an economy.

Society faces short run trade Off between inflation and unemployment

Short run effects of money growth

More amount of money in an economy stimulates spending and demand of goods and services

Higher demand causes firms to hire more people which leads to less unemployment

Business cycle

Unpredictable fluctuations in economic activity, measured by the production of goods and services or the number of people employed.