Introduction to Economics

These flashcards cover key concepts, definitions, and principles from the lecture notes on economics, designed to aid in exam preparation.

What is economics?

The study of how individuals and societies use limited resources to satisfy unlimited wants.

What are the three key economic questions addressed by all economies?

1. What to produce? 2. How to produce? 3. For whom to produce?

What is managerial economics?

A branch of economics that applies economic concepts to business and management decision-making.

What is marginal analysis?

A technique that compares the extra benefits and extra costs of decisions before making a choice.

Describe the theory of consumer demand.

It explains how customers decide what to buy.

What is the theory of the firm?

It explores how firms decide on production, pricing, and output levels.

What does public choice theory study?

It examines how government and business decisions affect the economy.

Define scarcity.

A situation where resources are limited, making it impossible to satisfy all wants.

What is opportunity cost?

The value of the next best alternative that is given up when a choice is made.

What does the Production Possibilities Curve (PPC) illustrate?

It shows the maximum combinations of two goods that can be produced efficiently with the available resources.

What is economic efficiency?

Using all resources wisely to maximize output with minimal waste.

What distinguishes positive economics from normative economics?

Positive economics describes what is factual and testable, while normative economics is opinion-based and describes what should be.

How does a price ceiling affect the market?

It sets a maximum legal price, which can lead to shortages when the demand exceeds supply.

What can cause the Production Possibilities Curve to shift outward?

An increase in resources, technological advancements, or improvements in productivity.

What is GDP?

Gross Domestic Product, the total value of all final goods and services produced within a country over a specific period.

Why is GDP considered important?

It indicates the health and performance of an economy, influencing government policy and investment decisions.

What is the difference between nominal and real values?

Nominal values are not adjusted for inflation, while real values show the purchasing power adjusted for inflation.

Define elasticity in economics.

Elasticity measures how responsive one variable is to changes in another variable, such as price or income.

What does the Law of Demand state?

When price rises, quantity demanded falls; when price falls, quantity demanded rises.

What is an example of a command economy?

North Korea, where the government makes all economic decisions.

What type of economic system combines market and command elements?

A mixed economy.

What are some key factors affecting demand?

Income, tastes and preferences, prices of related goods, and number of consumers.

What is the significance of elasticity of demand?

It helps determine how much quantity demanded will change in response to price changes.