econ final

Economics

The study of how people choose to allocate scarce resources to satisfy unlimited wants.

Scarcity

The condition of having limited resources to meet unlimited wants.

Opportunity Cost

The value of the next best alternative that is given up when making a choice.

Explicit Cost

A direct, out-of-pocket payment made in the course of making a decision.

Implicit Cost

The opportunity cost of using one's own resources, not involving a direct payment.

Marginal Analysis

The process of comparing additional benefits and additional costs of an action.

Marginal Benefit

The additional benefit received from consuming one more unit of a good or service.

Marginal Cost

The additional cost incurred from producing or consuming one more unit.

Incentive

A factor that motivates individuals to act or not act.

Positive Statement

A fact-based statement that can be tested or proven.

Normative Statement

A value-based opinion that cannot be tested or proven.

Circular Flow Diagram

A model showing the flow of goods, services, and money between households and firms.

Production Possibilities Frontier (PPF)

A curve showing the maximum combinations of goods and services that can be produced efficiently.

Feasible Point

A combination of goods that can be produced with available resources (on or inside the PPF).

Efficient Point

A point on the PPF where all resources are fully and efficiently used.

Comparative Advantage

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

Absolute Advantage

The ability to produce more output with the same resources than another producer.

Specialization

Focusing production on a single good or service where the producer has a comparative advantage.

Gains from Trade

The increased output and consumption that parties can achieve through specialization and exchange.

Law of Demand

As price increases, quantity demanded decreases (and vice versa), all else equal.

Law of Supply

As price increases, quantity supplied increases (and vice versa), all else equal.

Change in Quantity Demanded

Movement along the demand curve due to a change in the price of the good.

Change in Demand

A shift of the demand curve due to factors like income, preferences, or related goods.

Change in Quantity Supplied

Movement along the supply curve due to a change in the price of the good.

Change in Supply

A shift of the supply curve due to factors like input costs, technology, or number of sellers.

Market Equilibrium

The point where quantity demanded equals quantity supplied.

Shortage

A situation where quantity demanded exceeds quantity supplied at a given price.

Surplus

A situation where quantity supplied exceeds quantity demanded at a given price.

Gross Domestic Product (GDP)

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

Nominal GDP

GDP measured using current prices, not adjusted for inflation.

Real GDP

GDP adjusted for changes in the price level using constant base year prices.

GDP Deflator

A price index that measures the level of prices of all new, domestically produced goods and services in an economy.

Consumer Price Index (CPI)

A measure that examines the weighted average of prices of a fixed basket of goods and services.

Inflation Rate

The percentage change in the price level over a period of time.

Price Index

A number that compares prices in one year with prices in a base year.

Unemployment Rate

The percentage of the labor force that is actively seeking work but not employed.

Labor Force Participation Rate

The percentage of the adult population that is either employed or actively seeking work.

Frictional Unemployment

Short-term unemployment that occurs while people are looking for jobs or transitioning.

Structural Unemployment

Long-term unemployment arising from a mismatch of skills or location.

Cyclical Unemployment

Unemployment caused by a downturn in the economy or business cycle.

Natural Rate of Unemployment

The sum of frictional and structural unemployment when the economy is at full employment.

Investment

Spending on capital equipment, inventories, and structures, including new housing.

Inventory Investment

Goods produced but not yet sold; counts as investment in GDP.

Government Spending (G)

Expenditures by government on final goods and services; excludes transfer payments.

Transfer Payments

Payments by the government to individuals for which no good or service is received in return.

Intermediate Good

A good used in the production of a final good and not counted separately in GDP.

Final Good

A good sold to the final consumer, counted in GDP.

Capital Good

A man-made resource used to produce other goods and services.

Private Saving

Household income that is not used for consumption or taxes. (Y - T - C)

Public Saving

The difference between government revenue and spending. (T - G)

National Saving

The sum of private and public saving.

Real Interest Rate

The nominal interest rate adjusted for inflation. (Nominal rate - inflation rate)

Rule of 70

A formula to estimate how long it takes for a quantity to double. (70 / growth rate)

Real Income

Income adjusted for changes in the price level (purchasing power).

Cost of Living Adjustment (COLA)

An increase in income to maintain purchasing power after inflation.

Value Added

The market value a firm adds to a product; equal to output minus the cost of intermediate goods.

Loanable Funds Market

A model of the market that shows the relationship between interest rate and saving/investment.

Expenditure Approach

A method to calculate GDP by adding consumption, investment, government purchases, and net exports.

Income Approach

A method to calculate GDP by summing wages, rent, interest, and profit.

Standard of Living

The level of wealth, comfort, and material goods available to a person or society.

Productivity

The amount of goods and services produced per unit of input (e.g., per worker or per hour).

GDP per Capita

Real GDP divided by the total population, used to measure average economic well-being.

Real GDP per Capita Growth

The increase in real GDP per person, adjusted for inflation and population changes.