Introduction to Economics: Key Concepts and Models

A set of vocabulary flashcards covering basic economic principles, budget line calculations, and the production possibilities model from Chapter 1 and Chapter 2 lectures.

Opportunity Cost

The highest value alternative that is given up when making a choice.

Adam Smith

The master of the free market who wrote The Wealth of Nations in $1776$ and popularized the idea that there is no such thing as a free lunch.

Most Important Element in a Market Economy

Prices.

Opportunity Cost Formula (Budget Line)

A ratio evaluated at the extremes calculated as $\frac{\text{What you give up}}{\text{What you get}}$.

Budget Line

A model representing a single consumer's economizing problem, showing the combinations of two goods that can be purchased with a limited income.

Production Possibilities Model

A model illustrating the possible production combinations of two goods that a society can choose given constraints of fixed resources, fixed technology, and full employment.

Capital Goods

Goods such as machinery that are used for the production of items to be consumed later.

Consumer Goods

Goods produced for immediate consumption by individuals, such as pizza.

Efficiency (PPC)

Operating at any point directly on the production possibilities curve, meaning scarce resources are used wisely without waste.

Recession

A economic state represented by a point inside the production possibilities curve where output is inadequate, defined as $2$ quarters of reducing GDP.

Unattainable Point

Any point located outside the production possibilities curve that cannot be achieved given current resource and technology constraints.

Marginal Decision

An optimal decision made on the margin, focusing on the incremental or next choice.

Law of Increasing Opportunity Cost

The principle stating that as you produce more of a good, its opportunity cost increases, represented by the bowed-out shape of the production possibilities curve.

Economic Growth

An outward expansion of the production possibilities curve that lessens the burden of scarcity by increasing standard of living and quality of life.