Intro to Economics Flashcards

Flashcards covering key vocabulary and concepts from an economics lecture.

Economics

Study of how societies allocate scarce resources to satisfy unlimited wants and needs.

Allocative Efficiency

Achieved when a society produces good and services that satisfy its people’s preference; failures results in resource waste

Technical Efficiency

Realized when a society maximizes production from its resources; inefficiency also leads to wasted resources

Standards of Equity

Pertains to the fair distribution of goods and services, though standards of equity differ across societies.

Scarcity

The fundamental economic problem where human wants exceed the available resources to satisfy them.

Opportunity Cost

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

Rational Behavior

The assumption that individuals act in a way that aligns with their goals and knowledge.

Marginal Analysis

Decision-making by weighing the additional costs and benefits of a specific change in behavior.

Allocative Efficiency

Producing goods and services that satisfy society's preferences, avoiding resource waste.

Technical Efficiency

Maximizing production from available resources, avoiding resource waste.

Contributory Standard

Distribution of goods and services based on individual contributions to society.

Needs Standard

Distribution of goods and services based on the needs of households.

Equality Standard

Distribution of goods and services where every person receives an equal share.

Goods

Tangible items that fulfill human needs, wants, or desires.

Services

Intangible items that fulfill human needs, wants, or desires.

Land

All natural resources used in production.

Labor

Human work effort used in production.

Capital

Man-made productive implements used in production.

Entrepreneurship

Creative labor that identifies and manages new business opportunities.

Technology

Practical application of scientific knowledge to enhance productivity.

Production Possibilities Frontier Curve

Illustrates the combinations of two goods that can be produced with fixed resources.

Law of Diminishing Marginal Returns

As more of one input is added to a fixed input, the marginal product of the variable input eventually decreases.

Law of Increasing Opportunity Cost

As more of a good is produced, the opportunity cost of producing an additional unit increases.

Demand

The relationship between the price of a product and the quantity consumers are willing to buy.

Law of Demand

As prices decrease, quantity demanded increases (inverse relationship).

Ceteris Paribus

Assumption that all other variables are held constant when examining the effects of price changes on demand.

Supply

The relationship between the price of a product and the quantity producers are willing to supply.

Market Equilibrium

The point where demand and supply curves intersect, representing price and quantity stability.

Traditional Economy

Economic system that relies on customs for production and distribution.

Command Economy

Economic system where a central authority makes economic decisions.

Market Economy

Economic system lacking a central authority, driven by individual consumer needs and desires.

Mixed Economy

Economic system that combines elements of traditional, command, and market systems.

Capitalism

Economic system where productive resources are privately owned.

Socialism

Economic system where productive resources are collectively owned by society or managed by the government.

Circular Flow Model

Illustrates the economic relationships between households and firms in a market economy.

Consumer Sovereignty

Consumers dictate production in a market economy, compelling businesses to align with preferences.

Expenditures on goods and services

Government purchases of items such as battleships, tools, and salaries for military, educational, or bureaucratic personnel.

Transfer payments

Funds or in-kind items provided to individuals or businesses without the government receiving an equivalent good or service in return.

Gross National Product (GNP)

A measurement of the dollar value of all final goods and services produced in an economy over a specified period.

Final Goods and Services

Products sold directly to end-users.

Intermediate Goods and Services

Items in the production process, purchased by firms for resale or further processing.

Value-Added (VA)

Calculated as Cost of Goods Sold - Cost of Intermediate Goods; aggregates contributions from all firms at various production stages.

Gross National Income (GNI)

Reflects total incomes earned by households and is derived from the value-added concept.

Business Cycles

Alternating periods of prosperity and recession in market-oriented economies.

Peak

The highest point of business activity, occurring at a specific time.

Contraction

A period of declining business activity, lasting over time.

Trough

The lowest point in business activity, occurring at a specific time.

Expansion

A period of growing business activity, taking place over time.

Money

Generally accepted in exchange for goods/services and in debt repayment.

Medium of Exchange

Facilitates transactions, eliminating the inefficiencies of barter systems.

Unit of Value

Standard measure to express the value of goods/services

Store of Value

Allows wealth storage; highly liquid but typically lower returns compared to other assets.

Standard of Deferred Payment

Used for future payments in transactions

M1

Comprises highly liquid forms of money: currency, deposits, and other checkable deposits.

Currency

Includes coins and paper money.

Demand Deposits

Checking accounts in commercial banks, easily transferable via checks.

M2

Encompasses M1 plus less liquid forms: Savings Deposits, Small Denomination Time Deposits, Money Market Mutual Funds/Deposit Accounts, and Overnight Repurchase Agreements.

Financial Intermediaries

Organizations that facilitate saving and investment, contributing to economic growth.

Reserves

Money holdings of banks, primarily in demand deposits at other banks or the Federal Reserve and cash in vaults.

Required Reserves

Legally mandated amount a bank must hold, calculated using the required reserve ratio.

Excess Reserves

The surplus of reserves held over the required reserves.

Fractional Reserve Banking

Banks operate with only a fraction of their deposits held as reserves.

Federal Reserve System (the "Fed")

Central bank of the U.S. Oversees banking stability, monetary policy, inflation, and unemployment.

Open Market Operations

Buying/selling government bonds to affect bank reserves and credit.

Discount Rate

The interest rate at which banks can borrow from the Fed.

The European Union (EU)

A powerful trade bloc among 15 European nations, reducing internal tariffs while imposing tariffs on external goods.

NAFTA

Created a free-trade zone among Canada, Mexico, and the U.S., aiming to eliminate tariffs by 2008.

GATT

Established the World Trade Organization (WTO), enhancing global trade standardization and dispute resolution.

The new economy

Economists predict the technological revolution will have a profound impact on society, akin to the Industrial Revolution.