Economics Vocabulary Review

Vocabulary flashcards covering foundational economic principles, market structures, and production models based on the lecture notes.

Circular Flow Diagram

Model of the continuous flow of resources, goods, services, and money between households and firms.

Comparative Advantage

Ability to produce a good at a lower opportunity cost than another.

Absolute Advantage

Ability to produce more of a good with the same resources than another.

Economics

Study of how scarce resources are allocated to satisfy unlimited wants.

Economic Thinking

Decision-making based on marginal benefits, marginal costs, and opportunity costs.

Incentives

Rewards or penalties that influence choices.

Macroeconomics

Study of the economy as a whole ($GDP$, unemployment, inflation, growth).

Microeconomics

Study of individual households, firms, and markets.

Marginal Thinking

Evaluating decisions by comparing additional (marginal) benefits and costs.

Markets

Places or systems where buyers and sellers exchange goods, services, or resources.

Opportunity Cost

The value of the next-best alternative given up when a choice is made.

Scarcity

Limited resources relative unlimited wants.

Trade

Exchange of goods and services that allows specialization and gains from comparative advantage.

Trade-Offs

Sacrifices made when choosing one option over another due to scarcity.

Capital Goods

Man-made resources (tools, machinery, buildings) used to produce other goods and services.

Ceteris Paribus

"All other things held constant"-assumption used when analyzing the effect of one variable.

Consumer Goods

Goods and services bought by households for final use/consumption.

Business Investment

Spending by firms on capital goods (not stocks or bonds) to increase future production.

Law of Increasing Opportunity Costs

As production of one good rises, the opportunity cost of producing additional units increases (resources are not equally suited to all uses).

Long Run

Period in which all resources/inputs are variable (no fixed costs).

Short Run

Period in which at least one resource/input is fixed.

PPF or PPC

Production Possibilities Frontier/Curve-graph showing the maximum combinations of two goods that can be produced with available resources and technology.

Specialization

Focusing resources on producing one (or a few) goods where comparative advantage exists, increasing overall productivity.