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Economic Methodology
The study of the aims and difficulties in economics, focusing on welfare, information, and modeling.
Ceteris Paribus
Latin phrase meaning 'all other things being equal', used to isolate the effect of one variable.
Positive Economic Statements
Statements based on facts that can be tested for truth or falsehood.
Normative Economic Statements
Statements based on opinion or value judgments, which can vary between individuals.
Economic Welfare
The benefit or satisfaction gained from the allocation of resources, measured by well-being indicators.
Factor of Production
The resources necessary to produce goods and services, including land, labor, capital, and enterprise.
Renewable Resources
Natural resources that can be replenished over time, such as forests and fish stocks.
Non-Renewable Resources
Resources that cannot be replenished, such as oil and coal.
Scarcity
The fundamental economic problem arising from limited resources and infinite wants.
Opportunity Cost
The next best alternative that is forgone when making an economic decision.
Production Possibility Frontier (PPF)
A curve demonstrating the maximum output combinations of two goods that can be produced with available resources.
Economic Agents
Individuals or entities such as consumers, firms, and governments that make economic decisions.
Market Supply
The total amount of a good or service that firms are willing to sell at a given price.
Law of Demand
As the price of a good increases, the quantity demanded decreases, indicating an inverse relationship.
Price Elasticity of Demand (PED)
Measure of how responsive the quantity demanded of a good is to a change in its price.
Perfectly Inelastic Demand
Demand where quantity demanded does not change, regardless of price change, represented by a PED of 0.
Diminishing Returns
A principle stating that as more units of a variable resource are added to a fixed resource, the additional output generated will eventually decrease.
Internal Economies of Scale
Cost advantages that accrue to a firm as it grows, leading to lower average costs.
Market Structure
The organization and characteristics of a market, which influence the behavior of firms and consumers.
Monopoly
A market structure characterized by a single seller or producer dominating the entire market.
Market Failure
A situation where the allocation of goods and services is not efficient, leading to negative outcomes.
Externalities
Costs or benefits that affect third parties who did not choose to incur those costs or benefits.
Merit Goods
Goods that are under-consumed in a free market because consumers do not fully realize their benefits.
Demerit Goods
Goods that are over-consumed in a free market due to consumers underestimating their costs.
Quasi-Public Goods
Goods that have some characteristics of public goods but are not completely non-excludable or non-rival.
Aggregate Demand
The total demand for goods and services within an economy at a given overall price level and in a given time period.
Inflation
The rate at which the general level of prices for goods and services rises, eroding purchasing power.
Unemployment Rate
The percentage of the labor force that is jobless and actively seeking employment.
Gross Domestic Product (GDP)
The total value of all goods and services produced within a country in a specific time period.
Cyclical Unemployment
Unemployment that arises from fluctuations in the economy, often increasing during recessions.
Fiscal Policy
Government policy regarding taxation and spending to influence economic conditions.
Monetary Policy
The process by which the central bank manages the money supply and interest rates to control inflation.
Balance of Trade
The difference between a country's exports and imports, indicating economic stability.
Economic Growth
An increase in the output of goods and services in an economy over time, typically measured by GDP.
Trade-Offs
The concept of giving up one thing in return for another, common in economic decision-making.
Business Cycle
Fluctuations in economic activity over time, consisting of expansion and contraction phases.
Economic Indicators
Statistics that provide information about economic performance and forecast future performance.
Exchange Rate
The value of one currency for the purpose of conversion to another, influencing trade and investment.
Supply and Demand
The relationship between the quantity of a commodity available and the desire for that commodity.
Price Ceiling
A government-imposed limit on how high a price can be charged for a product, often leading to shortages.
Price Floor
A minimum price set by the government for a particular good or service, intended to prevent prices from being too low.
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