Economics Review: Theories, Models, Assumptions; Graphs, Variables, and Simultaneous Equations

A vocabulary-focused set of flashcards covering key concepts from the economics lecture notes: theories, models, assumptions; graph-based relationships; types of variable relationships; simultaneous equations; and fundamental micro/macro concepts like demand, supply, and opportunity cost.

Economic theory

The big conclusion or general principle derived from analyzing models and economic situations; considered a proven truth.

Economic model

A simplified representation of how economic variables relate, often visualized with graphs, used to test policies and understand relationships.

Assumptions (in economics)

Facts or starting points accepted as true that underlie models; the conditions under which conclusions hold.

Endogenous variable

A variable whose value is determined within the economic model or system (e.g., y = f(x)).

Exogenous variable

A variable whose value is determined outside the model and influences other variables.

Dependent variable

The variable whose value is determined by other variables within the model (often denoted y).

Independent variable

The variable that drives changes in the dependent variable (often denoted x).

Function notation (f(x))

Represents a dependent variable as a function of x; y = f(x) means y depends on x.

Simultaneous equations

A set of two or more equations that must be satisfied at the same time; solved to find a unique set of variable values.

Intersection (solution to simultaneous equations)

The point where the graphs of all equations cross, giving the values that satisfy every equation.

Positive linear relationship

A direct, constant-slope relationship where as x increases, y increases in a straight line.

Negative linear relationship

A direct, constant-slope relationship where as x increases, y decreases in a straight line.

Nonlinear relationship

A relationship where the change in y for a given change in x is not constant, producing curves.

Concave function

A shape bending downward (like a cave); marginal effects diminish as x grows.

Convex function

A shape bending upward (like a bowl); marginal effects increase as x grows.

Maximum value (of a function)

The highest point on a curve; occurs where the first derivative is zero and beyond which y decreases.

Minimum value (of a function)

The lowest point on a curve; occurs where the first derivative is zero and beyond which y increases.

Opportunity cost

The value of the next best alternative forgone when making a choice.

Demand

The relationship between price and quantity demanded; how price changes affect how much people want to buy.

Supply

The relationship between price and quantity supplied; how price changes affect how much producers are willing to sell.