Economics for Engineers - Module 1 Flashcards

A comprehensive set of vocabulary flashcards covering basic economic problems, consumer behavior, market laws, and production theories based on the Economics for Engineers transcript.

Scarcity

The limited supply of resources at our command relative to the unlimited wants for goods and services.

The Central Economic Problem

The core challenge faced by every economy (capitalist, socialist, or mixed) to deal with the scarcity of resources relative to the wants for them.

Resource Allocation

The basic economic problem of deciding what commodities are being produced and in what quantities, such as consumer, capital, or defense goods.

Opportunity Cost

The cost of the next best alternative forgone, which includes monetary costs as well as time or products given up.

Production Possibility Curve (PPC)

A graph showing different combinations of quantities of two goods produced in an economy subject to limited resources; also known as the Production Possibility Frontier and formulated by Paul A. Samuelson.

Marginal Rate of Product Transformation (MRPT)

The slope of the Production Possibility Curve ($PPC$), representing the rate at which one product is transformed into another along the curve.

Utility

The attribute of a commodity to satisfy or satiate a consumer’s wants; mathematically expressed as $U= f (m_1, n_1, r_1)$. The concept was originated by Jeremy Bentham.

Total Utility (TU)

The sum total of utility levels derived from each unit of a commodity consumed within a given period of time.

Marginal Utility (MU)

The addition to total utility when an additional unit of a commodity is consumed, calculated as $MU_n = TU_n - TU_{n-1}$ or $\frac{\Delta TU}{\Delta Q}$.

Law of Diminishing Marginal Utility

A law introduced by Alfred Marshall stating that as the stock of a commodity increases, its marginal utility to the consumer decreases, eventually falling to zero or becoming negative.

Law of Demand

The principle stating that, other things remaining constant ($\text{ceteris paribus}$), demand for a product is inversely proportional to its price.

Giffen Goods

A special type of inferior good consumed by poor consumers where an increase in price results in an increase in quantity demanded.

Veblen Goods

Prestigious goods (e.g., diamonds) where higher prices lead to higher demand because they promote social prestige; also known as Goods of Status.

Demonstration Effect

A phenomenon where a section of society imitates the consumption patterns of higher income groups.

Extension in Demand

An increase in quantity demanded specifically due to a fall in the price of the commodity, with other things being equal.

Contraction in Demand

A decrease in quantity demanded specifically due to a rise in the price of the commodity, other things remaining the same.

Law of Supply

The principle stating that, other things remaining the same, a higher price for a commodity leads to a greater quantity supplied by the supplier.

Elasticity of Demand

The measure of the degree of responsiveness of the quantity demanded of a commodity to a change in any of its determinants.

Price Elasticity of Demand ($e_p$)

The proportionate change in quantity demanded divided by the proportionate change in price, calculated as $e_p = \frac{\Delta Q}{\Delta P} \times \frac{P}{Q}$.

Income Elasticity of Demand

The percentage change in the quantity demanded resulting from a $1$-percent increase in income.

Cross-Price Elasticity of Demand

The percentage change in the quantity demanded of one good resulting from a $1$-percent increase in the price of another good.

Market Equilibrium

A condition existing when the quantity supplied and quantity demanded are equal, resulting in no tendency for the market price to change.

Excess Demand (Shortage)

A condition where quantity demanded exceeds quantity supplied at the current price, causing price to rise until equilibrium is restored.

Excess Supply (Surplus)

A condition where quantity supplied exceeds quantity demanded at the current price, causing price to fall until equilibrium is restored.

Land

A factor of production defined as anything that is a gift of nature and not the result of human effort; its economic return is called rent.

Labour

The physical or mental effort of human beings in the production process; its economic return is termed as wages and salary.

Capital

Wealth used for further production produced by human beings, categorized into physical capital (equipment, buildings) and human capital (skills, knowledge); its return is interest.

Organisation (Enterprise)

The ability to coordinate and utilize all factors of production for economic gains.

Production Function

A technical relation connecting factor inputs and outputs, expressed as $Q = f(L, K, R, Ld, T, t)$.

Law of Variable Proportion

A short-run production law developed by David Ricardo stating that as one input is increased with other inputs fixed, the Marginal Product ($MP$) of the variable factor eventually declines.

Law of Returns to Scale

A long-run production analysis where all factors are changed; it includes Increasing ($IRTS$), Constant ($CRTS$), and Decreasing ($DRTS$) returns to scale.

Isoquant

A curve representing various combinations of two factors of production (e.g., capital and labour) that yield the same level of output.

Cobb Douglas Production Function

A relationship between output and two inputs (labor and capital) expressed as $Q=AL^{\alpha}K^{\beta}$, developed by Paul H. Douglas and C.W. Cobb.