Level 5 Applied Economics: Key Concepts and Terms

These flashcards cover vital concepts and terms from applied economics, helpful for exam preparation.

Economics

A social science that studies human behavior and how scarce resources are distributed to satisfy the infinite needs and wants of mankind.

Microeconomics

The branch of economics that studies the interactions of consumers and producers in individual markets for goods and services.

Macroeconomics

The branch of economics that focuses on the economy as a whole and examines aggregate variables such as national income.

Opportunity Cost

The best alternative choice foregone; the second-best use of resources that must be sacrificed to obtain a good.

Utility

The satisfaction or pleasure derived from consuming a good or service.

Marginal Utility

The additional satisfaction gained from consuming one more unit of a good or service.

Law of Diminishing Marginal Utility

The principle stating that as consumption of a commodity increases, the satisfaction gained from each additional unit decreases.

Factors of Production

The resources used to produce goods and services, including land, labor, capital, and enterprise.

Free Enterprise Economy

A system with minimal government involvement where prices are determined by market demand and supply.

Command Economy

An economic system where the government makes all decisions regarding production and distribution.

Mixed Economy

An economic system that combines elements of both market and planned economies, with some government intervention.

Demand

The quantity of a good or service that consumers are willing and able to purchase at various prices.

Supply

The quantity of a good or service that producers are willing and able to sell at various prices.

Equilibrium

The state where the quantity demanded equals the quantity supplied, resulting in a stable market price.

Sticky Prices

Prices that do not adjust quickly to changes in supply and demand.

Variable Costs

Costs that change with the level of output, such as raw materials and labor.

Fixed Costs

Costs that remain constant regardless of the level of output, such as rent.

Economies of Scale

The cost advantages that businesses experience as they increase production, reducing the average cost per unit.

Diseconomies of Scale

The disadvantages that arise when a business grows too large, leading to inefficiencies and increased average costs.

Inflation

A sustained increase in the general price level of goods and services in an economy.

CPI (Consumer Price Index)

An index that measures the average change in prices paid by consumers for goods and services.

Fiscal Policy

Government policies regarding taxation and spending aimed at influencing the economy.

Monetary Policy

Central bank actions that manage money supply and interest rates in an economy.

National Income

The total income earned by a nation's residents and businesses, used as a measure of economic activity.

GDP (Gross Domestic Product)

The total value of all final goods and services produced within a country's borders in a given year.

GNP (Gross National Product)

The total value of all final goods and services produced by a country's residents, regardless of location.

GNI (Gross National Income)

The total income earned by a country's residents, including income earned abroad.

Exports

Goods and services sold to foreign markets.

Imports

Goods and services purchased from foreign markets.

Balance of Trade

The difference between the value of a country's exports and imports.

Trade Barriers

Government-imposed regulations such as tariffs, quotas, and embargoes that restrict international trade.