ECONOMICS EXAM material

Economics

Study of how people use limited resources to satisfy unlimited needs

Microeconomics

Study of individual consumers and firms

Macroeconomics

Study of the economy as a whole

Mesoeconomics

Study of economic sectors or industries

Scarcity

Limited resources but unlimited wants

Opportunity Cost

Value of the next best alternative you give up

Marginalism

Decision-making based on small additional changes

Law of Diminishing Marginal Utility

Each extra unit gives less satisfaction than the previous one

Cost

What a producer gives up to make a product

Price

Amount of money paid for a good or service

GDP (Gross Domestic Product)

Total value of goods and services produced in a country

GNP (Gross National Product)

GDP plus income from abroad minus income paid abroad

NFIA (Net Factor Income from Abroad)

Income earned abroad minus income paid to foreigners

Nominal GDP

GDP measured at current prices

Real GDP

GDP adjusted for inflation

Unemployment Rate

Percentage of unemployed people in the labor force

Labor Force

Employed and unemployed people who can work

Law of Demand

When price goes up, demand goes down

Law of Supply

When price goes up, supply goes up

Inflation

General increase in prices over time

Fiscal Policy

Government use of taxes and spending to control the economy

Monetary Policy

Central bank control of money supply and interest rates

Demand

Quantity of a good consumers want to buy at a price

Supply

Quantity of a good producers want to sell at a price

Elasticity of Demand

How demand changes when price changes

Income Effect

Change in demand due to change in income or purchasing power

Substitution Effect

Consumers switch to cheaper alternatives when prices change

Recession

Period of economic decline

Booming Economy

Period of strong economic growth

Minimum Selling Price

Lowest price a company can sell without loss

Exchange Rate

Value of one currency compared to another