Introduction to Microeconomics: Foundations, PPF, Demand, and Supply

Comprehensive vocabulary flashcards covering basic economic concepts, production possibilities frontiers, comparative advantage, and the fundamentals of supply and demand.

Economics

The study of the choices people make in response to scarcity.

Scarcity

A situation in which unlimited wants exceed the limited resources available.

Economic Models

Simplified versions of reality used to analyze real-world economic situations.

Rationality

The assumption that economic decision-makers use all available information to achieve their goals by weighing costs and benefits.

Opportunity Cost

The highest-valued alternative that must be given up to engage in an activity or make a choice.

Marginal Benefit ($MB$)

The additional benefit associated with a small amount extra of some action.

Marginal Cost ($MC$)

The additional cost associated with a small amount extra of some action.

Sunk Cost

A past cost that choices can no longer affect and that should not be considered when making decisions at the margin.

Incentive

Something that influences behavior by changing trade-offs, either positively or negatively.

Positive Analysis

The study of the way things are, focusing on factual, testable statements and cause-and-effect relationships.

Normative Analysis

The study of the way things should be, which involves value judgments and opinions.

Microeconomics

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

Macroeconomics

The study of the economy as a whole, focusing on issues such as inflation, unemployment, and economic growth.

Econometrics

The study and application of statistical methods to economic data.

Production Possibilities Frontier (PPF)

A curve showing the maximum attainable combinations of two products that may be produced or purchased with available resources and current technology.

Economic Growth

The ability of an economy to increase production of goods and services, illustrated by an outward shift of the Production Possibilities Frontier.

The Invisible Hand

The economic mechanism by which global production coordinates naturally from self-interested individuals seeking to improve their own lives.

Absolute Advantage

The ability of an individual, firm, or country to produce more of a good or service than competitors using the same quantity of resources.

Comparative Advantage

The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than competitors.

Autarky

A situation of economic isolation in which a country does not trade with others and must produce everything it consumes.

Gains from Trade

The improvements in economic outcomes that occur when specialized producers exchange goods and services, allowing consumption beyond their individual PPFs.

Market

A group of buyers and sellers of a good or service and the institution by which they come together to trade.

Perfectly Competitive Market

A market structure characterized by standardized goods, zero transaction costs, full information, and price-taking participants.

Productive Efficiency

A situation in which goods or services are produced at the lowest possible cost.

Allocative Efficiency

A situation in which production is consistent with consumer preferences, such that the marginal benefit of production equals its marginal cost ($MB = MC$).

Equity

The fair distribution of economic benefits across society.

Demand Schedule

A table showing the relationship between the price of a product and the quantity of the product demanded.

Demand Curve

A downward-sloping curve showing the relationship between the price of a product and the quantity demanded.

Quantity Demanded

The amount of a good or service that a consumer or a market of consumers is willing and able to purchase at a given price.

Market Demand

The total quantity demanded by all the consumers in a given market for a product or service.

Ceteris Paribus

A Latin phrase meaning 'all else held equal,' signifying that all variables other than the specific ones being analyzed are held constant.

Law of Demand

The principle that, holding everything else constant (ceteris paribus), an increase in price causes a decrease in quantity demanded, and a decrease in price causes an increase in quantity demanded.

Substitution Effect

The change in quantity demanded resulting from a price change that makes a good cheaper or more expensive relative to other goods.

Income Effect

The change in quantity demanded of a good resulting from a price change that alters a consumer's real purchasing power.

Normal Good

A good for which demand increases when consumer income rises and decreases when income falls.

Inferior Good

A good for which demand decreases when consumer income rises and increases when income falls.

Substitutes

Goods and services that can be used in place of each other, where an increase in the price of one leads to an increase in demand for the other.

Complements

Goods and services that are used together, where an increase in the price of one leads to a decrease in demand for the other.

Change in Demand vs. Change in Quantity Demanded

A change in price causes a movement along the existing demand curve (change in quantity demanded), whereas any other non-price factor causes the entire curve to shift (change in demand).

Supply Schedule

A table showing the relationship between the price of a product and the quantity of the product supplied.

Supply Curve

An upward-sloping curve showing the relationship between the price of a product and the quantity supplied.

Law of Supply

The rule that, holding everything else constant (ceteris paribus), an increase in price causes an increase in quantity supplied, and a decrease in price causes a decrease in quantity supplied.

Inputs

Things such as raw materials, labor, or machinery used in the production of a good or service.

Technological Change

A change in a firm's ability to produce a given level of output with a given quantity of inputs, altering production costs and shifting supply.

Change in Supply vs. Change in Quantity Supplied

A change in the product's own price causes a movement along the supply curve (change in quantity supplied), whereas a non-price factor shifts the entire curve (change in supply).

Market Equilibrium

A situation in which quantity demanded equals quantity supplied ($Q_d = Q_s$), with neither excess supply nor excess demand.

Excess Supply (Surplus)

A market condition where the quantity supplied exceeds the quantity demanded at the current price, creating a glut.

Excess Demand (Shortage)

A market condition where the quantity demanded exceeds the quantity supplied at the current price.