Introduction to Economic Principles and Market Dynamics

Scarcity

Limited resources but unlimited wants, leading to trade-offs.

Incentives

Factors that motivate actions, such as prices and rewards.

Economic Surplus

The positive difference between benefits and costs.

Rational Rules

Decision-making based on rational thinking to maximize benefit or minimize cost.

Opportunity Cost

The value of the next best alternative foregone when a choice is made.

Marginal Thinking

Considering the additional benefit versus the additional cost for the next unit.

Cost-Benefit

Taking action only if the benefit exceeds the cost.

Interdependence

The concept that choices are influenced by others and the environment.

PPF Curve

Graph showing the trade-offs between producing two goods.

Outside the curve

Production levels that are unattainable due to scarcity.

On the curve

Efficient resource allocation.

Inside the curve

Inefficient resource allocation.

Law of Demand

As price decreases, quantity demanded increases.

Law of Supply

As price increases, quantity supplied increases.

Diminishing MB

Decreasing value of each additional unit of a good.

Diminishing MP

Decreasing marginal productivity of additional resources.

Increasing MC

Cost of producing additional units rises.

Quantity Demanded (Qd)

Amount of a good consumers are willing to buy at a specific price.

Demand (D)

The entire relationship between price and quantity demanded.

Quantity Supplied (Qs)

Amount of a good producers are willing to sell at a specific price.

Supply (S)

The entire relationship between price and quantity supplied.

Movement along the curve

Occurs due to price changes.

Shift of the curve

Occurs due to changes in factors other than price.

Normal Goods

Goods for which demand increases as income rises.

Inferior Goods

Goods for which demand decreases as income rises.

Substitutes

Goods that can replace each other in consumption.

Complements

Goods consumed together.

Marginal Cost

Cost that changes with each additional unit produced.

Fixed Costs

Costs that remain constant regardless of production levels.

Sunk Costs

Costs that cannot be recovered and should not influence decisions.

Perfect Competition

Market structure with many firms, identical products, and free entry/exit.

Equilibrium

Point where quantity demanded equals quantity supplied.

Surplus

Excess supply leading to a price drop.

Shortage

Insufficient supply leading to a price increase.

Single event shifts

Changes in equilibrium due to shifts in either supply or demand curves.