Unit 1: The Economy

The Economy

The system of production, distribution, and consumption of goods and services in a society.

Economics

The study of how people, firms, and governments allocate scarce resources to satisfy needs and wants.

Social Science

Academic disciplines that study human society and behavior, including economics, sociology, and political science.

Microeconomics

Focuses on individual decision-making units like households and firms, analyzing supply, demand, and prices.

Macroeconomics

Examines the economy as a whole, studying aggregate measures like GDP, inflation, and unemployment.

GDP

The total market value of all final goods and services produced within a country in a given period.

GDP per capita

GDP divided by population; measures average income or output per person.

Growth in GDP per capita

Increase in average income/output per person, often used to track economic development.

Industrial Revolution

Period beginning in the 18th century marked by mechanization, factories, and massive productivity growth.

Global income inequality

Unequal distribution of income across countries and individuals worldwide.

Hockey stick of history

Graph showing long stagnation in living standards followed by sharp growth after the Industrial Revolution.

Economic System

The structure by which a society organizes production and distribution (e.g., capitalism, socialism).

Institutions

Formal and informal rules, norms, and organizations that shape economic and social interactions.

Private Property

Legal right to own, use, and transfer assets, central to capitalist economies.

Market

A system where buyers and sellers exchange goods and services, usually guided by prices.

Firms

Organizations that produce goods or services, hire labor, and seek profits

Capitalism

Economic system based on private property, markets, and profit-driven firms.

Malthusian model

Theory that population growth outpaces resources, keeping incomes near subsistence levels.

Diminishing average product of labor

As more workers are added, output per worker eventually decreases due to limited resources

Subsistence level of income

Minimum income needed to sustain basic living needs like food and shelter.

Malthusian trap

Cycle where population growth cancels out productivity gains, preventing long-term income growth.