Unit 1: Basic Economic Concepts (copy)

Economics

The study of how people, firms, and societies use their scarce productive resources to best satisfy their unlimited material wants.

Scarcity

The condition where all factors of production are limited, leading to limited production of goods and services.

Macroeconomics

The branch of economics that studies the economy as a whole, focusing on national economic factors.

Microeconomics

The branch of economics that focuses on individual consumers and firms within the economy.

Factors of Production

Resources used to produce goods and services, including labor, land, physical capital, and entrepreneurial ability.

Opportunity Cost

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

Trade-offs

The choices individuals, firms, and governments must make due to scarce resources.

Production Possibilities Curve (PPC)

A model that illustrates the trade-offs and opportunity costs of producing two goods or services.

Increasing Opportunity Cost

The principle that as production of one good increases, the opportunity cost of producing additional units rises.

Decreasing Opportunity Cost

The concept of increasing efficiency to minimize the opportunity cost of not pursuing other goals.

Productive Efficiency

When an economy produces the maximum output for a given level of technology and resources.

Allocative Efficiency

The optimal mix of goods and services produced to maximize net benefits to society.

Economic Growth

The ability to produce a larger total output over time, often due to increased resources or technological advancements.

Comparative Advantage

The ability of an individual or nation to produce a good at a lower opportunity cost than others.

Absolute Advantage

The ability to produce more of a good or service using fewer inputs than another producer.

Law of Demand

The principle that when the price of a good rises, the quantity demanded decreases, holding all else equal.

Determinants of Demand

Factors that cause the demand curve to shift, including income, number of buyers, substitutes, expectations, complements, and tastes.

Law of Supply

The principle that when the price level increases, the quantity of a good supplied increases.

Determinants of Supply

Factors that influence the quantity of goods supplied, including resources, other good prices, taxes, technology, expectations, and number of competitors.

Market Equilibrium

The price at which the quantity demanded equals the quantity supplied, also known as the market-clearing price.

Market Disequilibrium

A situation where there is either a shortage or surplus in the market, leading to price adjustments.

Market Shortage

A condition where the quantity demanded exceeds the quantity supplied, causing prices to rise.

Market Surplus

A condition where the quantity supplied exceeds the quantity demanded, causing prices to fall.