Introduction to Economics Flashcards

This set covers introductory economic definitions, branches of economics, nature of economic statements, and the Production Possibility Curve as presented in the lecture notes.

Economics

The study of how individuals, businesses, governments, and societies make choices to allocate scarce resources to satisfy unlimited wants.

Lionel Robbins' Definition of Economics

A science of scarcity that studies human behavior as a relationship between ends and scarce means with alternative uses.

Alfred Marshall's Definition of Economics

The study of man in the ordinary business of life, focusing on wealth and human welfare.

Positive Statements

Factual or testable statements that describe "what is," such as Papua New Guinea’s inflation rate being $5.4\%$ in $2024$.

Normative Statements

Opinion-based value judgments that prescribe "what ought to be," such as the claim that the government should increase spending on free education.

Consumption

The use of goods and services by households or individuals to fulfill their needs and wants, influenced by income, prices, and preferences.

Production

The process of combining resources (land, labor, capital, and entrepreneurship) to create goods and services.

Exchange

The act of trading goods and services between buyers and sellers, examining markets, price mechanisms, and trade systems.

Distribution

How the total output (income, wealth, and goods) of an economy is divided among different people or groups.

Public Finance

The study of government revenue and expenditure, including taxation policies and budget management, to stabilize the economy.

Microeconomics

The "earthworm’s eye view" of the forest that focuses on individual units such as consumers, firms, and specific markets.

Macroeconomics

The "bird’s eye view" of the forest that deals with the economy as a whole, including national income, inflation, and unemployment.

Scarcity

The basic economic problem occurring because resources are limited while human wants are unlimited.

Choice

The decisions individuals must make because scarcity prevents them from satisfying all their wants.

Opportunity Cost

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

Marginal Analysis

The comparison of additional benefits and additional costs when making a decision.

Trade-offs

The act of giving up one thing to get another.

Efficiency

The best possible use of resources to achieve maximum output.

Equity

The fair distribution of resources, income, and wealth within a society.

Production Possibility Curve (PPC)

A graph showing the maximum combinations of goods or services that can be produced with fixed resources and constant technology.

PPC Concave Shape

A feature of the Production Possibility Curve caused by increasing opportunity cost.

Underutilization

Represented by points inside the Production Possibility Curve where resources are not being fully employed.

Unattainable Points

Points located outside the Production Possibility Curve that cannot be reached with current resources and technology.

Opportunity Cost Formula

$$\text{Opportunity Cost} = \frac{\text{What is Given Up}}{\text{What is Gained}}$$