Lecture Notes: Economics Basics – Vocabulary Flashcards

Vocabulary flashcards covering key economic concepts from the lecture notes, including scarcity, markets, models, and the supply-demand framework.

Economics

The study of how humans allocate scarce resources to satisfy unlimited wants and needs.

Scarcity

A condition in which wants exceed the available resources, forcing trade-offs and choices.

Microeconomics

The study of individual agents (households, workers, firms) and their behavior and choices.

Macroeconomics

The study of the economy as a whole, including factors like growth, unemployment, inflation, government, and trade.

Adam Smith

Often called the father of economics; also described as a moral philosopher.

Feudalism

An early economic system (roughly 800–1500) characterized by an agricultural, self-sufficient society before capitalism.

Capitalism

An economic system with private firms producing goods and services in a market-driven environment.

Traditional economy

An economy based on agriculture and traditional practices rather than modern markets.

Command economy

An economy directed by a central authority (e.g., king or dictator) who dictates production.

Market economy

An economy where private firms compete to produce goods and services for buyers in voluntary exchanges.

Economic theory

A framework explaining how two or more variables interact, often simplified into models.

Model (economic model)

A simplified representation of reality used to study relationships and make predictions.

Circular flow diagram

A model illustrating the flow of money, goods, and resources between households and firms.

Opportunity cost

What you give up to obtain something else (the next best alternative).

Budget constraint

Limit on spending based on income and prices; feasible bundles lie on or inside the constraint.

Budget constraint equation

Budget constraint: price1 × quantity1 + price2 × quantity2 = total budget (etc. for more goods).

Slope of the budget constraint

Represents the opportunity cost of one good in terms of the other (negative price ratio).

Marginal thinking

Evaluating the costs and benefits of consuming one more unit of a good or service.

Diminishing returns (diminishing marginal utility)

The additional satisfaction (marginal utility) from each extra unit tends to decline as consumption increases.

Sunk costs

Past costs that cannot be recovered and should not affect current decisions.

Production Possibilities Frontier (PPF)

A curve showing the maximum feasible combinations of two goods given resources.

Trade-offs on the PPF

Efficient points lie on the frontier; inside is inefficient; outside is unattainable; slope shows opportunity costs.

Law of increasing opportunity costs

As production of a good expands, the opportunity cost of producing more of that good increases.

Allocative efficiency

The mix of goods on the PPF that society most desires.

Absolute advantage

The ability of a country or firm to produce more of a good with given resources.

Comparative advantage

Producing a good at a lower opportunity cost than others; who gives up less.

Positive statement

A claim describing how the world currently is, factual and testable.

Normative statement

A claim about how the world should be; value-laden and prescriptive.

Demand

The willingness and ability to purchase a good at various prices, influenced by determinants like preferences and income.

Normal good

A good for which demand rises as income rises.

Inferior good

A good for which demand falls as income rises.

Substitutes

Goods that can replace each other; a price rise in one tends to increase demand for the other.

Complements

Goods often consumed together; a price rise in one tends to reduce demand for the other.

Future expectations

What buyers think will happen to prices or availability in the future, affecting current demand.

Ceteris paribus

All other things being equal; analysis typically holds other factors constant.

Price (in demand context)

The amount buyers are willing to pay for a unit of a good.

Quantity demanded

The total number of units a buyer would purchase at a given price.

Law of demand

An inverse relationship: as price rises, quantity demanded falls.

Demand determinants (factors)

Key factors that shift the demand curve (preferences, income, substitutes, complements, future expectations, etc.).

Supply

The amount of a good or service producers are willing to offer at each price; influenced by costs, technology, and other determinants.

Law of supply

As price rises, quantity supplied increases; positive relationship between price and quantity supplied.

Equilibrium

The price and quantity at which supply equals demand; market-clearing point.

Surplus

Quantity supplied exceeds quantity demanded at a given price (price is too high).

Shortage

Quantity demanded exceeds quantity supplied at a given price (price is too low).

Demand shifts

Determinants cause the demand curve to move left or right (increase shifts right; decrease shifts left).

Supply shifts

Determinants cause the supply curve to move left or right (increase shifts right; decrease shifts left).