EWD Vocabulary (Combined)

individual module sets (1-6) in library

Economics

the study of the allocation of scarce sources to meet unlimited human wants

Micro-economics

the study of decision-making by individual economic agents and how they interact in markets

Macro-economics

the study of the aggregate performance of the entire economic system, including inflation and growth

Opportunity costs

the measure of the options or benefits sacrificed when making a decision

Economic well-being

the degree of satisfaction with command over material resources

Preference independence

the condition where a consumer’s preferences for one good are not affected by the consumption of another

Positive preference

a situation where consuming more of Good A makes a consumer want more of Good B

Negative preference

a situation where consuming more of Good A makes a consumer want less of Good B

Ceteris paribus

a clause meaning "all other things being equal," used to isolate the effect of one variable

Economic activity

the volume of buying and selling that occurs in an economy over a specific period

Economy

the sum total of all production and exchange activities taking place

Scarcity

the limited nature of society's resources in the face of unlimited wants

Trade-off

the loss of benefits from one option balanced against the benefits gained from a chosen alternative

Equity

the property of distributing economic prosperity fairly among members of society

Marginal changes

small, incremental adjustments made to an existing plan of action

Economic system

the way in which resources are organized and allocated to provide for a citizenry's needs

Capitalist economic system

a system relying on private ownership of production factors exchanged through a price mechanism primarily for profit

Market economy

an economy that allocates resources through the decentralized decisions of many firms and households

Planned economic systems

systems where economic activity and resource allocation are determined by central planners

Market failure

a situation where the market on its own fails to produce an efficient allocation of resources

Externality

the uncompensated impact of one person’s actions on the well-being of a bystander

Market power

the ability of a single economic actor to unduly influence market prices or output

Economic growth

the increase in the total amount of goods and services produced in an economy over time

Gross Domestic Product (GDP) per capita

the market value of all goods and services produced in a country divided by its population

Standard of living

a measure of the amount of goods and services that can be purchased by a country's population

Productivity

the quantity of goods and services produced from each hour of a worker's or factor's time

Inflation

an increase in the overall level of prices across the economy

Model

a simplified representation of reality used to understand complex systems or predict outcomes

Counterfactual

an analysis based on what would have happened if a specific decision or event had not occurred

Endogenous variable

a variable whose value is determined within the economic model being used

Exogenous variable

a variable whose value is determined outside of the model

Deductive reasoning

a process beginning with known facts or assumptions to test a hypothesis and arrive at conclusions

Inductive reasoning

a process identifying patterns in observations and data to form generalized theories

Falsifiability

the inherent possibility of a theory being rejected based on new observations

Neo-classical Economics

a school of thought assuming rational, autonomous agents who maximize utility or profit subject to constraints

Heterodox economics

economic perspectives that are at odds with the mainstream (Neo-classical) view

Feminist Economics

a school that critiques Neo-classical assumptions, emphasizing unpaid domestic work and social inequalities

Marxist Economics

an approach derived from Karl Marx focusing on power dynamics between human groups in a capitalist system

The Austrian School

a school prioritizing individual liberty and minimal government intervention (laissez-faire)

Positive statements

descriptive claims about how the world actually functions

Normative statements

prescriptive claims about how the world should be

Market

a group of buyers and sellers of a specific good or service

Competitive market

a market with so many buyers and sellers that no individual has a significant impact on the price

Quantity demanded

the amount of a good that buyers are willing and able to purchase at a specific price

Law of demand

the rule that, ceteris paribus, quantity demanded falls when the price of a good rises

Demand curve

a graph illustrating the relationship between a good's price and the quantity demanded

Income effect

the change in consumption resulting from a price change that effectively alters a consumer's real income

Substitution effect

the change in consumption as consumers switch from more expensive goods to relatively cheaper alternatives

Substitutes

two goods for which a price fall in one reduces the demand for the other

Complements

two goods for which a price increase in one leads to a decrease in demand for the other

Normal good

a good for which demand increases when income rises, ceteris paribus

Inferior good

a good for which demand decreases when income rises, ceteris paribus

Quantity supplied

the amount of a good that sellers are willing and able to sell at a specific price

Law of supply

the rule that, ceteris paribus, quantity supplied rises when the price of a good rises

Equilibrium

a state where market forces are balanced and there is no pressure for change

Equilibrium price

the price at which the quantity demanded equals the quantity supplied

Surplus

a situation where quantity supplied exceeds quantity demanded at the current price

Shortage

a situation where quantity demanded exceeds quantity supplied at the current price

Comparative statics

the comparison of two different static equilibrium states

Elasticity

a measure of the responsiveness of quantity demanded or supplied to a change in its determinants

Price elasticity of demand

a measure of how much quantity demanded responds to a price change

Standard Economic Model (SEM)

the classical theory assuming consumers act rationally to maximize utility

Monotonicity

the assumption that "more is better" regarding the consumption of goods

Utility

the satisfaction or well-being derived from consuming a product

Budget constraint

the limit on consumption bundles that a consumer can afford given their income

Indifference curve

a curve representing bundles of goods that provide a consumer with the same level of satisfaction

Marginal utility

the additional satisfaction gained from consuming one more unit of a good

Diminishing marginal utility

the tendency for marginal utility to decline as more units of a good are consumed

Marginal Rate of Substitution (MRS)

the rate at which a consumer is willing to trade one good for another while staying equally satisfied

Giffen good

an inferior good for which demand increases as price rises because the income effect outweighs the substitution effect

Bounded rationality

the concept that humans make decisions within the limits of available information and mental capacity

Heuristics

mental shortcuts or "rules of thumb" used to simplify complex decision-making

Marginal Thinking

the economic principle of making choices based on additional benefits versus additional costs

Equity (in healthcare)

the goal of distributing healthcare fairly, ensuring similar services for similar conditions regardless of irrelevant factors like age or gender.

Macro-efficiency

a measure of efficiency regarding what percentage of a nation's total wealth (GDP) is spent on healthcare.

Micro-efficiency

a measure of efficiency regarding how specifically resources are allocated and spent within the healthcare sector.

Allocative Efficiency

a component of micro-efficiency concerning where resources should be spent within healthcare.

Productive Efficiency

a component of micro-efficiency concerning how resources should be spent to achieve the best results.

Third Party Payment Problem

a situation where patients face zero or low costs and doctors are paid fee-for-service, creating incentives to consume and deliver more care than is socially optimal.

Managed care

strategies used by insurance companies, such as prior authorization or deductibles, to control the healthcare decisions made by patients and providers.

Medicare

a public healthcare program in the USA primarily for those aged 65 and older, as well as certain other groups like the disabled.

Medicaid

a public healthcare program in the USA designed to provide coverage for low-income households.

Diagnosis-related groups (DRG)

a prospective payment system where the government provides a fixed amount per treatment case to incentivize hospitals to control costs.

Quasi-markets

reforms in public systems, like the UK's NHS, that introduce more consumer choice and competition among providers to increase responsiveness and quality.

Community rating

a regulation in insurance markets that prohibits differentiating premiums based on individual risk factors.

Individual mandate

a legal requirement for every individual to purchase health insurance, used to mitigate the problem of adverse selection

Actuarial insurance

a market-based insurance system where the premium price is directly linked to the individual's expected loss.

Premium

the cost paid for insurance, calculated by multiplying the probability of loss by the value of the insured item.

Adverse selection

a pre-contractual information asymmetry where high-risk individuals are more likely to seek insurance than low-risk individuals, potentially leading to market undersupply.

Moral hazard

a post-contractual information asymmetry where individuals engage in riskier behavior once they are insured because they are protected from the financial consequences of loss.

Social insurance

mandatory insurance systems that use decoupled premiums (not based on individual risk) to create risk-solidarity.

Risk-solidarity

the principle in social insurance where risks are redistributed across the population because it is considered unfair to discriminate based on factors like genetics or age.

Pareto criterium

the principle that social improvements are possible as long as the welfare of at least one individual can increase without decreasing the welfare of another.

Pareto efficiency

the economic state reached when no further Pareto improvements are possible.

Utility Possibility Curve (UPC)

a graph illustrating the maximum utility one person can achieve given the utility of everyone else in society, assuming the best possible use of available resources and technology.

First Welfare Theorem

the theory that, under specific conditions (rational actors, perfect information, no externalities, etc.), perfect competition results in a Pareto Efficient allocation of resources.

Social Indifference curve

a curve representing all combinations of individual welfare that result in the same total level of societal welfare.