Introduction to Economics and Market Systems

Vocabulary flashcards covering basic economic concepts, factors of production, supply and demand laws, market interventions, equilibrium, and price elasticity of demand based on lecture notes.

Economics

The study of choice and the impact these choices have on individuals, society, and the economy.

Scarcity

The economic problem arising because humans have unlimited wants but economies have limited resources.

Enterprise

A factor of production involving the ability of managers to take risks and generate new ideas.

Capital

Manmade inputs in the production process that depreciate over time; investment in this increases capital stock. It does not mean money.

Land

A factor of production consisting of physical land or sea; its quality can be improved and it can have different uses.

Labour

The human input in the production process, represented by the number of people willing and able to work.

Short-run Resource Constraint

The condition where resources are considered fixed in quantity and quality over a brief period of time.

Opportunity Cost

The measure of what has been sacrificed in the next best alternative.

Supply

How much producers are willing and able to offer for sale at different prices over a given period of time.

Law of Supply

The principle stating that as price increases, quantity supplied increases ($P \uparrow, Qs \uparrow$), and as price decreases, quantity supplied decreases ($P \downarrow, Qs \downarrow$).

Extension (Supply)

A movement along the supply curve to a higher quantity ($Qs$) resulting from a price increase.

Contraction (Supply)

A movement along the supply curve to a lower quantity ($Qs$) resulting from a price decrease.

Shift of Supply

A change in the supply curve resulting from a change in any condition of supply other than price, such as technology or input prices.

Market Economy

A system where economic decisions are made by producers and consumers.

Planned Economy

A system where economic decisions are made by the government.

Mixed Economy

A system where economic decisions are made by both the government and the free market.

Demand

The quantity of a good or service that consumers are willing and able to buy.

Law of Demand

The principle stating that as price increases, quantity demanded decreases ($P \uparrow, Qd \downarrow$), and as price decreases, quantity demanded increases ($P \downarrow, Qd \uparrow$).

Movement Along Demand Curve

A change in quantity demanded that occurs exclusively because the price of the good has changed.

Maximum Price (Price Ceiling)

A legal price set below the equilibrium ($P_e$), which can lead to excess demand and shadow markets.

Minimum Price (Price Floor)

A legal price set above the equilibrium ($P_e$), which can lead to excess supply and a waste of resources.

Market Equilibrium

The point where demand equals supply ($D = S$), determining the equilibrium price ($P_e$) and quantity ($Q_e$).

Excess Supply

A situation where price is above equilibrium ($P_1 > P_e$), causing quantity supplied to exceed quantity demanded ($Qs > Qd$).

Excess Demand

A situation where price is below equilibrium ($P_1 < P_e$), causing quantity demanded to exceed quantity supplied ($Qd > Qs$).

Price Elasticity of Demand (PED)

Measures the responsiveness of demand to a change in price, calculated as $\text{PED} = \frac{\text{Percentage change in } Qd}{\text{Percentage change in } P}$.

Total Revenue (TR)

The total consumer expenditure on a good, calculated as $\text{TR} = P \times Q$.

Relatively Elastic Demand

A state where the proportional change in quantity demanded is greater than the proportional change in price ($\text{PED} > 1$).

Relatively Inelastic Demand

A state where the proportional change in quantity demanded is less than the proportional change in price ($\text{PED} < 1$).

Perfectly Inelastic Demand

A state where demand remains constant regardless of price changes ($\text{PED} = 0$).

Unitary Elastic Demand

A state where the proportional change in quantity demanded is exactly equal to the proportional change in price ($\text{PED} = 1$).