Basic Concepts of Economic Theory - Lecture 1

Comprehensive vocabulary flashcards covering the basic principles of economics, the ten principles of economics, research methods, and economic systems based on the first lecture.

Oikonomia

A Greek term derived from 'oikos' (household) and 'nomos' (law/custom), meaning the rules or management of the household.

Economics

The social science that studies how society manages its limited resources to satisfy unlimited human needs.

Scarcity

The limited nature of society's resources, which means that society cannot produce all the goods and services people wish to have.

Primary Needs

Essential items required for human survival, such as food, clothing, and shelter.

Secondary Needs

Needs that arise from social interaction, including culture, social services, and luxury goods.

Capital

One of the four economic resources, including machinery, equipment, buildings, raw materials, and money used for production.

Entrepreneurship

The skill and ability to organize production resources, make rational decisions, innovate, and take risks or losses.

Microeconomics

The study of demand, supply, price formation, wages, profits, and taxes at the level of individual units like households and firms.

Macroeconomics

The study of the economy as a whole system, focusing on policies and indicators such as growth, inflation, unemployment, and foreign trade.

Opportunity Cost

The value of the next best alternative that must be given up to obtain a certain item or make a specific choice.

Marginal Changes

Small incremental adjustments to an existing plan of action used by rational people to improve their decisions.

Invisible Hand

A term introduced by Adam Smith in 1776 meaning the market price mechanism that guides producers and consumers in a market economy.

Market Failure

A situation in which a market left on its own fails to allocate resources efficiently.

Externalities

A factor in market failure where the actions of one person affect the well-being of others, such as environmental pollution.

Market Power

The ability of a single person or a small group of people to substantially influence market prices.

Productivity

The quantity of goods and services produced from each unit of labor input, which determines a country's standard of living.

Inflation

An increase in the overall level of prices in the economy, often caused by the growth in the quantity of money or rising production costs.

Phillips Curve

A curve showing the short-run inverse relationship (trade-off) between inflation and unemployment.

Ceteris Paribus

The 'scientific abstraction' method which assumes all 'other factors remain constant' while studying the effect of one specific variable.

Induction

A research method that derives general conclusions from specific facts or observations.

Deduction

A research method that draws specific conclusions from general premises or theories.

Positive Economics

An objective analysis that describes and explains economic phenomena as they actually are, based on verifiable facts.

Normative Economics

A prescriptive analysis that answers 'what should be' by providing recommendations and decisions based on value judgments.

Economic System

A complex set of relationships between households, firms, and the state, functioning through markets to solve the problem of scarcity.

Command Economy

An economic system based on state ownership and central planning, where the government decides what, how, and for whom to produce.

Circular Flow Diagram

A visual model that shows how goods, services, factors of production, and money flow through markets among households and firms.

Production Possibilities Frontier (PPF)

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

Technological Efficiency

A state where the maximum possible output is produced from a given level of resources.