Economics Preliminary Lecture Review

A comprehensive set of vocabulary flashcards covering basic economic concepts, market theory, labor and financial markets, and government intervention based on the lecture transcript.

Economics

The study of human behavior as a social science that focuses on factors affecting the production, consumption, and distribution of goods and services involving individuals, businesses, and governments.

The Economic Problem

The study of the relationship between unlimited ends (needs and wants) and scarce resources.

Opportunity Cost

A non-monetary cost occurring whenever a decision is made, representing the cost of forgoing one alternative over another.

Production Possibility Frontier (PPF)

A graphical representation of the maximum potential output of an economy at a fixed level of resources, assuming constant technology and full employment.

Law of Diminishing Returns

The economic principle stating that adding more variable input to fixed resources eventually yields smaller increases in output, causing the PPF to concave.

Productive Capacity

The total potential output of an economy given that all resources ($CELL$) are completely employed.

Allocative Efficiency

The point where resources are allocated according to the preferences of consumers and society for certain goods and services.

Consumer Sovereignty

The influence or power consumers exercise over what businesses produce based on their spending and consumption decisions.

Average Propensity to Consume ($APC$)

The tendency of a consumer to consume, calculated as consumption divided by income ($APC = \frac{C}{Y}$).

Average Propensity to Save ($APS$)

The tendency of a consumer to save, calculated as savings divided by income ($APS = \frac{S}{Y}$).

Marginal Propensity to Consume ($MPC$)

Measures the amount of extra consumption that occurs with a change in disposable income ($MPC = \frac{\text{Change in C}}{\text{Change in Y}}$).

Marginal Propensity to Save ($MPS$)

Measures the amount of extra saving that occurs with a change in disposable income ($MPS = \frac{\text{Change in S}}{\text{Change in Y}}$).

Technical Optimum

The point on the Long Run Average Cost ($LRAC$) curve where a business achieves the lowest average cost of production ($Q_2$).

Internal Economies of Scale

Reductions in average production costs resulting from a business increasing its internal scale, such as through labor specialization or volume purchasing discounts.

External Diseconomies of Scale

Increases in average production costs due to factors outside a firm's control, such as rising industry resource costs or increased government regulation.

Derived Demand

A situation where the demand for a resource (like labour) is a consequence of the demand for the final goods and services it produces.

Ceteris Paribus

A Latin phrase meaning "all other things being equal," used in economics to analyze the impact of one factor while others remain constant.

Veblen Goods

Luxury products for which demand increases as the price increases because of the product's exclusive nature (e.g., $Gucci$).

Market Equilibrium

The point where the quantity demanded by consumers equals the quantity supplied by firms ($D = S$).

Price Elasticity of Demand

A measure of the responsiveness of quantity demanded to a change in price, calculated as the percentage change in quantity divided by the percentage change in price.

Participation Rate

The proportion of the working-age population (aged over $15$ years) that is either employed or actively seeking employment.

Underemployment

A labor market condition referring to persons who are currently employed but would like to work additional hours.

National Employment Standards ($NES$)

Ten minimum employment entitlements established under the $Fair Work Act 2009$ that apply to employees in the national workplace relations system.

Better Off Overall Test ($BOOT$)

A test conducted by the $Fair Work Commission$ to ensure employees are better off under a proposed enterprise agreement than under the relevant modern award.

Primary Market

A financial market that facilitates the creation of new securities, such as an Initial Public Offering ($IPO$).

Secondary Market

A financial market where existing securities are exchanged between investors without the initial issuer receiving new capital.

Bond

A debt instrument issued by a company or government promising to pay a fixed interest rate ($coupon rate$) and repay the principal on a specific maturity date.

Monetary Policy

Macroeconomic actions taken by the $RBA$ to manipulate the money supply and interest rates to achieve price stability and full employment.

Domestic Market Operations ($DMOs$)

The process by which the $RBA$ influences the cash rate by buying or selling government securities to manage the supply of funds in exchange settlement accounts.

Policy Interest Rate Corridor

A framework where the $RBA$ sets a lending rate ceiling and a deposit rate floor ($0.25$ percentage points above/below the cash target) to keep the cash rate at its target.

Merit Goods

Goods and services that are beneficial to society (e.g., vaccinations) but are underproduced by the free market because consumers underestimate their benefits.

Public Goods

Goods that are non-excludable and non-rival (e.g., street lights), meaning they are not provided by the private sector due to the inability to generate profit.

Negative Externalities

Unintended social costs of private activities (e.g., pollution) that are not reflected in market prices, leading to overproduction.

Automatic Stabilisers

Non-discretionary fiscal policy tools, specifically progressive income taxes and social welfare payments, that respond counter-cyclically to the business cycle.

Fiscal Policy

The use of the federal budget (taxation and government expenditure) by the government to achieve economic objectives.