Econ notes

Productive Efficiency

Producing at the lowest cost on the Production Possibility Frontier (PPF).

Allocative Efficiency

Creating the best mix of goods to meet society's needs.

Positive Statement

A fact-based, testable statement, e.g., 'Higher wages increase costs.'

Normative Statement

An opinion-based statement reflecting a value judgment, e.g., 'Minimum wage should be higher.'

Terms of Trade

Conditions under which trade occurs, benefiting both parties if opportunity costs differ.

Comparative Advantage

The ability to produce a good at a lower opportunity cost than others.

Absolute Advantage

The ability to produce more of a good with the same resources compared to others.

Importer

A country that buys goods from another country when domestic prices are higher than world prices.

Exporter

A country that sells goods to another country when domestic prices are lower than world prices.

Demand Curve

A graph derived from a demand schedule, showing the relationship between price and quantity demanded.

Law of Demand

As price increases, quantity demanded decreases, and vice versa, due to substitution and income effects.

Movement Along Demand Curve

A change in the price of the good itself resulting in a change in quantity demanded.

Shift in Demand Curve

A change due to factors like income, preferences, population, or expectations, affecting demand for a good.

Normal Goods

Goods for which demand increases as consumer income increases.

Inferior Goods

Goods for which demand decreases when consumer income increases.

Substitutes

Goods that can replace each other; a price increase for one leads to an increase in demand for the other.

Complements

Goods that are used together; a price increase for one leads to a decrease in demand for the other.

Supply Curve

A graph derived from a supply schedule, showing the relationship between price and quantity supplied.

Law of Supply

As price increases, quantity supplied increases, and vice versa.

Input Prices

The cost of inputs used in production; higher costs can shift the supply curve left.

Market Equilibrium

The point where the supply and demand curves intersect, determining the market price and quantity.

Surplus

A situation where supply exceeds demand, leading to a price decrease until equilibrium is restored.

Shortage

A situation where demand exceeds supply, leading to a price increase until equilibrium is restored.