Economics Lecture Flashcards

A comprehensive set of vocabulary flashcards covering basic and intermediate macroeconomic and microeconomic concepts, production, market structures, and international trade.

Macroeconomics

The branch of economics that studies the performance of economies as a whole.

Microeconomics

The study of economic decisions made by individuals and the supply and demand from the perspective of consumers and suppliers.

Need

A feeling of lack coupled with the desire to satisfy it.

Want

A need that takes a certain form or is specific to an individual.

Scarcity

A situation where the demand for a good is greater than the supply.

Positive Economics

Economic analysis based on objective facts.

Normative Economics

Economic analysis based on subjective opinions.

Free Goods

Goods that do not have a cost of production.

Economic Goods

Goods that require resources to be produced and have a cost.

Opportunity Cost

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

Sunk Cost

Costs that occurred in the past and should not influence future decisions.

Marginal Cost

The cost of producing one additional unit of a good.

Marginal Benefit

The maximum amount of money a consumer is willing to pay for an extra unit of a product.

Incentives

Factors that motivate decisions based on the benefits derived from those decisions.

Factors of Production

The resources used in the production process: Capital, Entrepreneurship, Land, and Labour.

Labour

All human effort used to produce goods and services.

Human Capital

The capacity, education, and skills of a worker.

Financial Capital

The money or financial resources of a business.

Capital Goods

Man-made goods used to produce other goods and services.

Consumer Goods

Goods produced for immediate consumption and satisfaction.

Entrepreneurs

People who take risks and offer enterprise to organize production.

Product Market

The market where goods and services are supplied to households.

Factor Market

The market where resources used in the production process (factors of production) are traded.

Planned Economy

An economic system where the public sector is in control of resources and decisions.

Market Economy

An economic system where the private sector controls resources and decisions.

Mixed Economy

An economic system that combines elements of both public and private sector control.

Technology

The methods, procedures, and equipment used to produce goods and services.

Technical Progress

Improvements in the production process that allow more output to be produced using the same resources.

Efficiency

A state where resources are used to produce the greatest possible output with the least possible waste.

Technical Efficiency

A measure indicating whether resources are being wasted in the production process.

Economic Efficiency

A measure indicating the cost of each production technique.

Labour Productivity

A measure of output per worker calculated as $\frac{\text{Total output}}{\text{Number of workers employed}}$.

Production Possibility Curve (PPC)

A graph showing the combinations of two goods that can be produced in an economy if all resources are used efficiently.

Economic Growth

An increase in the size of a country's economy over a period of time, measured by Gross Domestic Product (GDP).

Profits

The excess of revenue over total costs.

Revenues (Total Revenue)

The amount a firm earns by selling goods or services, calculated as $\text{Price} \times \text{Quantity}$.

Fixed Costs

Costs that do not change with the level of production in the short run.

Variable Costs

Costs that are directly related to the level of output.

Total Cost (TC)

The sum of variable costs and fixed costs, expressed as $TC = VC + FC$.

Average Cost (AC)

The cost per unit produced, calculated as $AC = \frac{TC}{\text{Output}}$.

Break-even Point

The point in production where total costs equal total revenues ($TC = TR$).

Barter System

An exchange system where goods or services are traded without the use of money, requiring a double coincidence of wants.

Demand

The quantity of a good that consumers are willing and able to buy at a certain price.

Law of Demand

An inverse relationship stating that if the price of a good rises, demand decreases, and if the price falls, demand increases.

Substitution Effect

When the price of a good rises, consumers replace it with a cheaper alternative.

Income Effect

When prices go up but income stays the same, economic capacity decreases, leading to a decrease in demand.

Normal Goods

Goods for which demand increases as consumer income increases.

Inferior Goods

Goods for which demand decreases when income increases, usually because higher-quality alternatives exist.

Substitute Goods

Goods that satisfy the same need as another good.

Complementary Goods

Goods that are consumed together.

Law of Supply

A principle stating that if the price of a good rises, companies will supply a greater amount of that good.

Equilibrium Price

The price level where the quantity demanded equals the quantity supplied.

Price Elasticity of Demand (PED)

A measure of consumer responsiveness to price changes, calculated as $\frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}$.

Gross Domestic Product (GDP)

The total monetary value of all goods and services produced within a country, usually over a specific period of time.

Gross National Product (GNP)

The total output obtained by a country, including factors of production located abroad, calculated as $GNP = GDP + \text{RFN} - \text{RFE}$.

Human Development Index (HDI)

A composite measure of a country's progress measured by life expectancy, education level, and GDP per capita.

Inflation

A sustained rise in the general price level of goods and services.

Externalities

The positive or negative effects of a transaction on a third party who is not directly involved in the transaction.

Public Goods

Goods that are non-rivalrous and non-excludable, meaning they can be consumed by several people at once without reducing supply.

Aggregate Demand (AD)

The total amount that consumers, firms, governments, and foreigners are willing to spend in an economy, calculated as $AD = C + I + G + (X - M)$.

Interest Rate

The percentage representing the cost of borrowing money or the return on a loan.

Monetary Policy

The use of interest rates and money supply by the central bank to control aggregate demand and maintain price stability.

Absolute Advantage

A theory proposed by Adam Smith in $1776$ stating that a country should produce the goods it can produce in greater quantities than others.

Comparative Advantage

A theory proposed by David Ricardo in $1817$ stating that countries should specialize in goods for which they have the lowest opportunity cost.

Protectionism

The use of trade barriers such as tariffs, quotas, and subsidies to restrict international trade and protect domestic industries.

Balance of Payments

The accounting document that records all economic and financial transactions of a country with the rest of the world.