Introduction to Economics - Core Concepts and Principles

Vocabulary flashcards defining fundamental concepts, models, and analytical tools from Chapters 0, 1, 2, and 3 of introductory economics (Mankiw and CORE).

Oikonomos

The Greek word from which "economy" derives, meaning "one who manages a household".

Scarcity

The limited nature of society's resources, meaning that society cannot produce everything that people want.

Economics (Mankiw's definition)

The study of how society (as well as individuals, firms, and government) manages its scarce resources.

Theoretical research

Economic research that builds ideas by starting from assumptions and deriving analytical results, typically represented using mathematical models.

Empirical research

Economic research that uses statistical and real-world data to uncover patterns or test whether theoretical models fit reality.

Positive statement

A descriptive claim about how the world is, which can in principle be confirmed or refuted with empirical evidence.

Normative statement

A prescriptive claim that evaluates or recommends how the world ought to be, based on values, ethics, and politics rather than data alone.

Difference-in-differences

An empirical method that compares the change in an outcome for a treated group with the change in a control group to isolate the causal effect of a policy.

Natural experiment

An observational study relying on naturally occurring historical events or policy shifts across jurisdictions (such as a law changing in one state but not another) because lab experiments are impractical.

Microeconomics

The branch of economics studying how individual households and firms make decisions and interact in specific markets.

Macroeconomics

The branch of economics studying economy-wide phenomena, including inflation, unemployment, and economic growth.

Circular-flow diagram

A visual model of the economy demonstrating the dollar flows (outer loop) and flows of goods, services, and inputs (inner loop) between households and firms across markets.

Factors of production

The productive inputs used by firms to create goods and services, specifically categorized into labour, land, and capital (buildings and machinery).

Production possibilities frontier (PPF)

A graph showing the various combinations of output that an economy can possibly produce given the available factors of production and production technology.

Opportunity cost

Whatever must be given up to obtain some item; the value of the next-best forgone alternative rather than purely an out-of-pocket monetary outlay.

Marginal change

A small incremental adjustment made to an existing plan of action.

Incentive

Something (such as a prospect of a reward or a punishment) that induces an economic agent to act.

Autarky

A state of economic self-sufficiency in which an entity or country produces on its own without engaging in trade.

Absolute advantage

The ability of an economic producer to produce a good using fewer inputs (e.g., less labor time) than another producer.

Comparative advantage

The ability of an economic producer to produce a good at a lower opportunity cost than another producer.

Terms of trade

The agreed rate of exchange or price between two goods, which must fall strictly between each producer's opportunity costs for trade to benefit both sides.

Market economy

An economy that allocates resources through the decentralized decisions of numerous firms and households as they interact in markets for goods and services.

Invisible hand

Adam Smith's principle that price mechanisms lead self-interested individuals and firms to promote broader societal economic well-being without central coordination.

Property rights

The legal ability of an individual or firm to own, enforce, and exercise control over scarce economic resources.

Market failure

A situation in which an unregulated free market fails to allocate scarce resources efficiently on its own.

Externality

The uncompensated impact of one person's or firm's actions on the well-being of an uninvolved bystander (e.g., pollution).

Market power

The capacity of a single economic actor or small collective of actors to exert substantial influence on market prices.

Efficiency vs. Equality

The fundamental trade-off between maximizing the total output extracted from scarce resources ("size of the pie") and distributing those benefits uniformly among society's members ("how the pie is sliced").

Creative destruction

Joseph Schumpeter's concept describing how capitalist innovation continuously reallocates resources by replacing obsolete firms and technologies with newer, more productive ones.

Productivity

The quantity of goods and services produced per unit of labour input, identified as the primary long-run determinant of living standards.

Hyperinflation

An episode of extremely rapid, runaway price increases, triggered by excessive growth in the money supply, which causes the medium-of-exchange, unit-of-account, and store-of-value functions of currency to collapse.

Phillips curve

The short-run economic relationship indicating a trade-off between inflation and unemployment.

Business cycle

Irregular and largely unpredictable fluctuations in economic activity, characterized by changes in output, production, and employment.