Naked Economics - Video Flashcards (Key Vocabulary)

Vocabulary-style flashcards covering core concepts from the Naked Economics notes, spanning incentives, markets, policy, globalization, and development.

Naked Economics

Wheelan’s approach to economics that emphasizes intuitive, real-world ideas without heavy graphs or equations.

Incentives

Rewards or penalties that influence behavior and motivate actions.

Trade-off

A situation where choosing one option means giving up another; a balance of costs and benefits.

Utility

A measure of satisfaction or happiness that individuals seek to maximize.

Opportunity Cost

The value of the next-best alternative foregone when making a choice.

Externality

An unintended side effect of a transaction that affects third parties not directly involved.

Negative Externality

A cost imposed on others not borne by the producer or consumer.

Positive Externality

A benefit conferred on others not paid for by the benefactor.

Public Goods

Non-excludable and non-rival goods often provided or supported by the government.

Free Rider

Someone who benefits from a public good without paying for it.

Coase Theorem

Private bargaining can solve externalities if property rights are clear and transaction costs are low.

Property Rights

Legal rights to use, control, and transfer resources; essential for markets.

Copyright

Legal protection giving creators exclusive rights to their literary or artistic works.

Patent

Government-granted monopoly rights on an invention for a specific period.

Securitization

Pooling various loans into securities sold to investors; transfers risk and capital.

Credit Default Swap

A contract paying off if a borrower defaults; used to hedge or speculate.

Moral Hazard

Riskier behavior because the costs are borne by someone else (e.g., insurance).

Adverse Selection

Hidden information leads to poor market outcomes (e.g., high-risk individuals purchasing certain policies).

Asymmetric Information

Unequal information between buyers and sellers that can lead to market failure.

Signaling

Using observable cues (like education or branding) to convey private information.

Lemons (Market for Lemons)

A market where quality is hard to observe, leading to predominance of low-quality goods.

Branding

Building a recognizable brand to signal quality and reduce information gaps.

Human Capital

The stock of skills, knowledge, and abilities that people possess and invest in.

Productivity

Output per unit of input; higher productivity raises living standards.

GDP

Total value of all final goods and services produced in an economy.

GDP per Capita

GDP divided by population; a common measure of average living standards.

Purchasing Power Parity (PPP)

An exchange-rate concept where currencies should buy the same basket of goods in each country.

Big Mac Index

A playful PPP tool using the price of a Big Mac to compare currencies.

Comparative Advantage

Countries benefit from specializing where their opportunity costs are lowest and trading.

Absolute Advantage

A country can produce more of a good with the same resources than another country.

Tariffs

Taxes on imports intended to protect domestic industries.

Exchange Rate

The price of one currency in terms of another.

Floating Exchange Rate

Exchange rates determined by market forces without fixed targets.

Fixed Exchange Rate

A currency value pegged to another currency or basket and defended by policy.

Inflation

A general rise in price levels, reducing money’s purchasing power.

Monetary Policy

Central bank actions to influence money supply and interest rates.

Fiscal Policy

Government decisions on taxation and spending to influence the economy.

Open Market Operations

Central bank purchases/sales of government securities to manage the money supply.

Discount Rate

Interest rate at which a central bank lends to banks.

Federal Funds Rate

Target rate for overnight interbank lending; a key monetary policy tool.

Central Bank Independence

Insulation of the central bank from political pressure to maintain credibility.

TARP (Troubled Asset Relief Program)

US government program to stabilize financial institutions during the crisis.

Subprime Mortgage

A high-risk loan typically given to borrowers with weak credit; contributed to the crisis.

MBS (Mortgage-Backed Security)

A security backed by a pool of mortgages; linked to securitization trends.