Economics Core Principles, Demand, and Supply Flashcards

Vocabulary practice flashcards covering core economic principles, demand theory, consumer choice, supply analysis, and producer decisions from ECON101 notes.

Autarky

An economic system characterized by self-sufficiency where every individual consumes only what they produce themselves.

Division of Labor and Specialization

An economic system where production tasks are divided among individuals who specialize in specific activities to increase efficiency.

Cost-Benefit Principle

The principle stating that an option should only be pursued if the benefit is at least as large as the cost ($\text{Benefit} \ge \text{Cost}$).

Economic Surplus

The difference between the total benefit received and total cost incurred from a decision, measuring the increase in economic well-being.

Opportunity Cost Principle

The principle stating that the true cost of something is the next best alternative given up to get it.

Sunk Cost

A cost that has already been incurred and cannot be recovered regardless of future decisions, such as a non-refundable tuition payment of $\$4,500$ per term, which should be ignored in decision-making.

Production Possibilities Frontier (PPF)

A graph showing the maximum possible combination of outputs or grade improvements an individual or firm can produce given scarce resources.

Marginal Principle

The principle stating that decisions about quantity are best made incrementally by evaluating the extra benefit and extra cost of one additional unit.

Rational Rule

The rule stating that an activity should be continued as long as its marginal benefit exceeds or equals its marginal cost.

Interdependence Principle

The principle stating that an optimal choice depends on personal choices, choices of other decision makers, market dependencies, and dependencies over time.

Raison d'être

A French phrase meaning 'reason for being', referring to the primary purpose or reason why something exists.

Ceteris Paribus

A Latin phrase meaning 'all else being equal', used in economic analysis to isolate the relationship between two variables by keeping other factors constant.

Own Price

The specific price of the good itself being analyzed, such as the price per litre of gasoline.

Cross Price

The price of a related good, such as public transit ticket prices when analyzing the demand for gasoline.

Law of Demand

The economic law stating that, ceteris paribus, quantity demanded increases when price decreases, creating a downward-sloping demand curve.

Rational Rule for Buyers

The decision rule guiding consumers to continue purchasing additional units of a good until the marginal benefit equals the price ($\text{Marginal Benefit} = \text{Price}$).

Normal Good

A good for which demand increases when consumer income increases.

Inferior Good

A good for which demand decreases when consumer income increases.

Complementary Good

A related good for which a decrease in price leads to an increase in demand for another good.

Substitute Good

A related good for which a decrease in price leads to a decrease in demand for another good.

Network Effect

A condition in which a good becomes more valuable to an individual user as more people use it.

Congestion Effect

A condition in which a good becomes less valuable to an individual user as more people use it.

Law of Supply

The economic law stating that, ceteris paribus, quantity supplied increases when price increases and decreases when price decreases, creating an upward-sloping supply curve.

Perfectly Competitive Market

A market structure characterized by many buyers and sellers, identical products, perfect information, zero mobility costs, and no barriers to entry or exit, making all participants price takers.

Variable Costs

Production costs that change depending on the quantity of output produced, such as labor costs.

Fixed Costs

Production costs that do not vary with the quantity of output produced, such as capital costs.

Rational Rule for Sellers

The decision rule guiding sellers to supply one more unit as long as the market price is greater than or equal to the marginal cost ($\text{Price} \ge \text{Marginal Cost}$).

Diminishing Marginal Product

The phenomenon where adding extra units of a variable input (such as labor) to fixed inputs (such as equipment) yields smaller increases in output, increasing marginal costs.

Production Function

A mathematical relationship or table showing output ($Y$) generated from inputs such as labor ($L$) and capital ($K$), such as $Y = \sqrt{L \times K}$.

Substitutes-in-Production

Alternative outputs produced using the same inputs, where an increase in the price of one reduces the supply of the other.

Complements-in-Production

Outputs produced together using the same inputs, where an increase in the price of one increases the supply of the other.

Competition Bureau

A regulatory body whose rulings to allow or disallow corporate mergers impact the total number of sellers in a market, altering overall market supply.