Macroeconomics - 1,4,10

Trade-offs

Making decisions requires trading off one goal for another, often sacrificing one thing to gain another.

Opportunity cost

The opportunity cost of an item is what you give up to get it.

Rational people

Individuals who systematically and purposefully do the best they can to achieve their goals, given the available opportunities.

Marginal change

An incremental adjustment to an existing plan of action.

Incentive

Something that induces a person to act, such as the prospect of a punishment or reward.

Market economy

An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets.

Equilibrium

A situation where the market price has reached the level at which quantity supplied equals quantity demanded.

Surplus

The condition where quantity supplied exceeds quantity demanded at a given price.

Shortage

The condition where quantity demanded exceeds quantity supplied at a given price.

Law of Demand

When the price of a good rises, the quantity demanded falls, and when the price falls, the quantity demanded rises.

Demand Curve

A graphical representation of the demand schedule, showing quantity demanded at different prices.

Supply Curve

The curve that shows the relationship between the price of a good and the quantity supplied.

Market failure

A situation in which the market does not produce an efficient allocation of resources by itself.

GDP (Gross Domestic Product)

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

Real GDP

The production of goods and services valued at constant prices.

Nominal GDP

The production of goods and services valued at current prices.

Microeconomics

The study of how households and firms make decisions and how they interact in markets.

Macroeconomics

The study of economy-wide phenomena, including inflation, unemployment, and economic growth.

Externality

The impact of one person's actions on the well-being of a bystander.

Price Taker

A buyer or seller in a perfectly competitive market who must accept the market price.

Market Clearing Price

The price that balances the quantity supplied and quantity demanded.

Productivity

The amount of goods and services produced per unit of labor input.

Inflation

An increase in the overall level of prices in the economy.

Disposable Personal Income

The income of households after they pay their obligations to the government.