Economic Decision Making Overview

This flashcard set covers essential vocabulary terms and definitions related to economic decision-making and concepts discussed in the lecture.

Scarcity

The fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.

Opportunity Cost

The cost of the next best alternative that must be forgone when making a decision.

Cost-Benefit Analysis (CBA)

A systematic approach to estimating the strengths and weaknesses of alternatives in order to determine the best option.

Economic Models

Theoretical constructs that represent economic processes by a set of variables and a logical or quantitative relationship between them.

Production Possibility Frontier (PPF)

A curve that illustrates the varying amounts of two products that can be produced when both depend on the same finite resources.

Factors of Production

The resources used to produce goods and services, typically categorized as land, labor, capital, and entrepreneurship.

Law of Demand

An economic principle stating that, all else being equal, as the price of a good or service decreases, consumer demand for that good or service will increase.

Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good.

Supply

The total amount of a specific good or service that is available to consumers.

Consumer Surplus

The difference between what consumers are willing to pay and what they actually pay.

Producer Surplus

The difference between what producers are willing to accept for a good or service versus what they actually receive.

Unemployment Rate

The percentage of the total workforce that is unemployed but actively seeking employment.

Inflation

The rate at which the general level of prices for goods and services rises, leading to a decrease in purchasing power.

Interest Rate

The cost of borrowing or the reward for saving, expressed as a percentage of the total amount borrowed or saved.

Laissez-faire Economy

An economic system where the government minimizes its interference with the economy, allowing market forces to dictate supply and demand.

Traditional Economic System

An economic system that relies on customs and traditions to determine production and distribution.