Applied Economics Basic Terms and Concepts

A collection of flashcards defining foundational terms and concepts in applied economics as presented in the lecture notes.

Cost and benefit analysis

A formal analysis where actions are evaluated by weighing their pros and cons.

Oikonomia

The Greek word from which 'economics' originates, meaning 'management of the household'.

Economics

The social science that studies the production, distribution, and consumption of goods and services; also described as the use of limited resources to meet boundless desires.

Applied economics

The application of economic theories and models in real life to understand how choices affect individual decision-making and how the availability of factors aids in crafting sound judgment.

Scarcity

The natural limitation of resources that nature and previous generations have provided.

Opportunity cost

The cost or value of the next best alternative or choice which is forgone or given up when making a choice or a decision.

Marginalism

The principle of weighing only the cost and benefit that arises specifically from a particular decision.

Law of Supply and Demand

A theory used to explain the interactions between sellers and buyers for a particular product, service, or resource, defining the relationship between price and willingness to buy or sell.

Elasticity of demand

Describes how demand for goods or services increases or decreases when the price of that good or service changes.

Comparative advantage

A theoretical concept describing the ability of one party to produce goods and/or services with a lower opportunity cost compared to another party.

Absolute advantage

The ability or capacity to produce more output compared to another entity.

Gross Domestic Product (GDP)

A measure of a nation's economic performance and activity, usually calculated on a quarterly or annual basis.

GDP per capita at purchasing power parity (PPP)

An economic measurement that takes into account individual currencies and what they can buy to indicate the cost of living.

Gross National Product (GNP)

The total value of all goods and services produced by the residents and businesses of a country, irrespective of the location of production.

Inflation

The decline of purchasing power of a given currency over time, leading to a rise in the cost of living and the price of goods and services.

Fiscal Policy

The use of government spending and taxation to impact the economy.

Expansionary fiscal policy

A policy designed to boost the economy, commonly used in times of high unemployment and recession, by lowering taxes and increasing spending.

Contractionary fiscal policy

A policy designed to shrink economic growth in cases of high inflation by increasing taxes and reducing government spending.

Economic Growth

An increase in the production of economic goods and services compared between one period of time and another.

Interest rates

The charge applied to a loan for the use of an asset, allowing a lender to make financial gain from providing support.

Econometrics

The use of statistical methods such as regression models and null hypothesis testing to develop theories or test existing hypotheses in economics or finance.