Introduction to Economics - Lesson 1

Comprehensive vocabulary flashcards covering basic economic concepts, types of economies, efficiency, economic ideas, analysis methods, and mathematical graphing tools used in economics.

Economics

The study of the choices people make to attain their goals, given their scarce resources.

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants.

Trade-off

The idea that, because of scarcity, producing more of one good or service means producing less of another good or service.

Opportunity cost

What you must give up in order to get something.

Three questions every society must solve

1. What to produce; 2. How to produce; 3. Who gets what is produced.

Production possibilities frontier (PPF)

A curve that shows the combinations of two goods that can be produced if available resources and technology DO NOT change.

Centrally planned economy

An economy in which the government decides how economic resources will be allocated.

Market economy

An economy in which the decisions of households and firms interacting in markets allocate economic resources.

Mixed economy

An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.

Efficient

Taking all opportunities to make some people better off without making other people worse off.

Productive Efficiency

Production at the lowest possible cost.

Allocative Efficiency

A state of the economy in which production is in accordance with consumer preferences; specifically, it occurs when $MU=MC$ for the last unit produced.

Equity

The fair distribution of economic benefits.

Economic Model

A simplified version of reality used to analyze real-world situations, typically built on assumptions.

Market

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

Rational

The assumption that consumers and firms use all available information to weigh benefits and costs to achieve their goals.

Incentive

A thing that motivates people to change their behavior.

Marginal analysis

Analysis that involves comparing marginal benefits ($MB$) and marginal costs ($MC$), which are the additional benefits or costs associated with a small amount extra of an action.

Positive analysis

Analysis concerned with the way things are (factual/descriptive).

Normative analysis

Analysis concerned with what ought to be (prescriptive/value-based).

Microeconomics

The study of individual decision making, how those decisions impact specific markets, and how the government attempts to influence individual decision making.

Macroeconomics

The study of decision making across the whole economy and overall ups and downs in the economy.

Slope

Calculated as the change in the value on the vertical axis divided by the change in the value on the horizontal axis: rac{ ext{Rise}}{ ext{Run}} = rac{ riangle y}{ riangle x}.

Positively related variables

A relationship where two variables move in the same direction; one increases as the other increases.

Negatively related variables

A relationship where two variables move in opposite directions; one decreases as the other increases.

Tangent line

A straight line that touches a nonlinear curve at a specific point, used to measure the slope of the curve at that point.

Area of a triangle

ext{Area} = rac{1}{2} imes ext{Base} imes ext{Height}.

Percentage change formula

$rac{ ext{Value in the second period} - ext{Value in the first period}}{ ext{Value in the first period}} imes 100$.

Equation of a line

$y = mx + b$, where $y$ is the dependent variable, $m$ is the slope, $x$ is the independent variable, and $b$ is the y-intercept.