General Economics and Microeconomics Fundamentals

A comprehensive vocabulary review set covering basic economic concepts, microeconomic perspectives, components and factors of production, limitations of microeconomics, PPF concepts, and economic analysis types.

The study of properly allocating scarce resources to satisfy unlimited wants and needs.

Economics

An individual who studies the relationship between society's resources, working as consultants, professors, or members of economic think tanks.

Economist

Recognized as the 'Father of Economics' and the earliest recorded economist.

Adam Smith

The fundamental economic problem of having unlimited human wants and needs while possessing limited resources.

Scarcity

Essential items required for human survival.

Needs

Non-essential items or luxuries that individuals desire.

Wants

Giving up one option to gain another; basic decision-making.

Trade-off

The value of the next best choice given up when making a decision.

Opportunity Cost

Tangible physical products created for consumption or production.

Goods

Intangible work or tasks performed for consumers or businesses.

Services

Products manufactured for direct use by the end consumer.

Consumer Goods

Goods deployed by businesses to produce other consumer goods or services.

Capital Goods

Maximizing output using available resources.

Efficiency

The fair distribution of resources or income within an economy.

Equity

The study of the economy as a whole ('big picture'), including aggregate growth, employment, and inflation.

Macroeconomics

The study of individual economic units, including individual consumers, households, and businesses.

Microeconomics

Defines microeconomics as the study of particular firms, households, individual prices, wages, and income.

K.E. Boulding's View

Defines microeconomics as dealing with the division of total output among individual producers and sellers.

Gardner Ackley's View

Defines microeconomics as concerned with the economic activities of individual units like consumers and resource owners.

R.H. Leftwich's View

Defines microeconomics as focusing on behavioral determination of individual market prices.

Prof. Samuelson's View

Analysis based on the principle that resources are scarce relative to unlimited human wants, meaning economic decisions depend on price mechanisms.

Price Theory

Analyzes how consumers make choices to maximize satisfaction from scarce resources.

Theory of Consumer Behavior and Demand

Uses a cardinal approach to evaluate customer satisfaction.

Classical Utility Approach

Uses an ordinal utility approach to rank consumer preferences.

Neo-Classical Approach

Analyzes consumer choice based on observable purchasing habits rather than subjective utility statements.

Paul A. Samuelson's Revealed Preference Theory

Analyzes how firms seek profit maximization or output equilibrium.

Theory of Production Behavior

Examines how output changes when varying units of labor are added to a fixed unit of capital.

Law of Variable Proportion

Analyzes how firms balance cost minimization and output maximization to achieve optimal factor combinations.

Theory of Firm Behavior

Analyzes production costs and revenue generation across short-run and long-run periods.

Theory of Cost and Revenues

Studies pricing and output decisions under different market conditions, including Perfect Competition, Monopoly, Duopoly, and Monopolistic Competition.

Theory of Market Structure and Behavior

Analyzes how total national income is divided among land, labor, capital, and organization.

Theory of Income Distribution

Studies the simultaneous equilibrium of all individual consumer and producer markets.

Theory of General Equilibrium

Evaluates economic policies based on their contribution to overall human well-being.

Theory of Welfare Economics

Analyzes economic behavior and decisions made under risk where economic agents cannot avoid risk entirely.

Economics of Uncertainty

A cooperative process of combining inputs to produce goods or services.

Production

The required resources needed to manufacture goods and services.

Factors of Production

The enterprises or firms that manufacture goods or deliver services.

Producers

The individuals or institutions who purchase goods and services.

Consumers

Natural resources used in production.

Land

Physical and intellectual human exertion (manpower).

Labor

Tools, machinery, structures, and equipment used to generate goods/services.

Capital

Human capability to organize land, labor, and capital while investing and taking risks.

Entrepreneurial Ability

Presumes the existence of an entirely free market economy, which does not reflect real-world conditions.

Free Market Assumption

Incorrectly assumes continuous full employment across the economy.

Full Employment Assumption

A graphical representation showing the various combination outputs of two goods an economy can produce given fixed resources and technology.

Product Possibility Frontier (PPF)

Points situated directly along the PPF curve where all productive resources are fully utilized.

PPF Efficiency

Points located inside the PPF curve indicating underemployed or inefficiently used resources.

PPF Inefficiency / Underutilization

Points located outside the PPF curve that cannot be achieved with existing resources.

PPF Unattainability

Demonstrated by an outward shift of the entire PPF curve.

Economic Growth (PPF)

The quantity of one good that must be sacrificed to produce an extra unit of another good.

Marginal Opportunity Cost

Objective, fact-based economic analysis built on data; descriptive and analytical in nature.

Positive Economics

Subjective, value-based economic analysis focusing on what the economy ought to be; subjective and cannot be empirically tested as true or false.

Normative Economics