ECO1000 - Introduction to Economics, Trade, and Demand & Supply

Vocabulary flashcards generated from the ECO1000 lecture materials covering economic fundamentals, Production Possibilities Frontier (PPF), absolute and comparative advantage, terms of trade, and market supply and demand.

Economics

The study of how society manages its scarce resources, including how individuals, firms, and societies make decisions when allocating limited resources.

Scarcity

The fundamental economic condition in which society's limited resources are insufficient to satisfy unlimited human wants.

Opportunity Cost

Whatever must be given up to obtain an item; specifically, the value of the highest-valued option forgone when making a decision.

Microeconomics

The branch of economics that studies how individual households and firms make decisions and how they interact in specific markets.

Macroeconomics

The branch of economics that studies economy-wide phenomena, including inflation, unemployment, and overall economic growth.

Economic Model

A simplified, abstract representation of reality designed to focus on key relationships and explain or analyze economic behavior.

Positive Statement

A descriptive statement about "what is" that can be evaluated, tested, or refuted by examining empirical evidence.

Normative Statement

A prescriptive statement about "what ought to be" that reflects value judgments, opinions, and policy recommendations rather than testable facts.

Production Possibilities Frontier (PPF)

A graph that shows the various combinations of output that an economy can possibly produce given its available resources and production technology.

Economic Interdependence

A state in which individuals or nations rely on trade with others to acquire the goods and services they consume, rather than remaining economically self-sufficient.

Absolute Advantage

The ability of a producer to produce a good using fewer inputs (or produce more output given the same amount of inputs) than another producer.

Comparative Advantage

The ability of a producer to produce a good at a lower opportunity cost than another producer.

Principle of Comparative Advantage

The rule stating that entities should specialize in producing goods for which they hold a comparative advantage and trade with others, allowing both parties to achieve greater total consumption.

Terms of Trade (TOT)

The relative price at which two goods are traded between parties; to be mutually beneficial, it must lie between the domestic opportunity costs of the two producers.

Competitive Market

A market with so many buyers and sellers trading identical products that no single buyer or seller can influence the market price, making everyone a price taker.

Demand

A consumer purchase plan that describes the full relationship between the price of a good and the quantity demanded across various price points.

Quantity Demanded

The specific amount of a good or service that buyers are willing and able to purchase at a specific given price.

Law of Demand

The claim that, holding all other factors constant, the quantity demanded of a good falls when the price of that good rises.

Demand Curve

A downward-sloping graph that illustrates the inverse relationship between the price of a good and the quantity demanded.

Normal Good

A good for which, holding other things equal, an increase in consumer income leads to an increase in demand.

Inferior Good

A good for which, holding other things equal, an increase in consumer income leads to a decrease in demand.

Substitutes

Two goods for which an increase in the price of one good leads to an increase in the demand for the other good.

Complements

Two goods for which an increase in the price of one good leads to a decrease in the demand for the other good.

Supply

A seller's production plan that describes the full relationship between the price of a good and the quantity producers are willing and able to bring to market.

Quantity Supplied

The specific amount of a good that sellers are willing and able to sell at a particular price.

Supply Curve

An upward-sloping graph illustrating the direct relationship between the price of a good and the quantity supplied.

Equilibrium

A market state where quantity supplied equals quantity demanded ($Q_d = Q_s$), balancing economic forces so price and quantity remain stable.

Surplus (Excess Supply)

A condition occurring when the market price is above equilibrium, causing the quantity supplied to exceed the quantity demanded.

Shortage (Excess Demand)

A condition occurring when the market price is below equilibrium, causing the quantity demanded to exceed the quantity supplied.