1.1 What is economics? - Vocabulary Flashcards

Vocabulary flashcards covering key concepts from the economics lecture notes, including definitions of scarcity, opportunity cost, PPC, circular flow, factors of production, micro vs macroeconomics, economic systems, and the nine central concepts.

Economics

The social science that studies how individuals and societies allocate scarce resources to meet unlimited needs and wants, using scientific methods to model the behavior and interactions of economic agents (e.g., consumers, producers, the government).

Scarcity

The reality that resources are limited while human wants are unlimited, forcing choices and trade-offs.

Opportunity cost

The next best alternative forgone when a decision is made; the cost of the choice.

Free goods

Goods that are abundant with no opportunity cost (e.g., air, sunlight).

Factors of Production

The resources used to produce goods and services: Land, Labour, Capital, Entrepreneurship (CELL).

Land

Natural resources used in production (e.g., soil, minerals, water, timber).

Labour

Human effort used in production (physical and mental work).

Capital

Man-made resources used in production (machines, structures, infrastructure).

Entrepreneurship

The ability to organise the other factors of production and take on risk to innovate and start ventures.

Acronym CELL

A mnemonic for the four factors of production: Capital, Entrepreneurship, Land, Labour.

Production Possibilities Curve (PPC)

A model showing the maximum possible combinations of two goods an economy can produce with given resources and technology.

PPC assumptions

Fixed resources, only two goods produced, fixed technology, and resources used efficiently (full employment).

Increasing opportunity cost

A concave PPC where opportunity cost rises as more of one good is produced due to resource specialization.

Constant opportunity cost

A linear PPC where opportunity cost stays the same along the curve.

Efficiency (PPC)

Producing on the PPC curve; resources are used without waste.

Unemployment of resources

Producing inside the PPC curve; underutilization of resources.

Economic growth (PPC)

Outward shift of the PPC due to more resources, better resources, or technological improvements.

Circular flow of income

A model showing interactions between households and firms (and government, financial sector, and foreign sector) in which resources, income, and expenditure circulate.

Leakages

Withdrawals from the circular flow (taxes, savings, imports).

Injections

Additions to the circular flow (government spending, investments, exports).

Factor incomes

Payments to the factors of production: Wages (labour), Rent (land), Interest (capital), Profit (entrepreneurship).

Microeconomics

The study of individual markets and the behavior of individual economic agents (consumers, firms).

Macroeconomics

The study of the economy as a whole and government policy, including aggregate measures and overall growth.

Economic systems

Ways economies organize production: Free market, Centrally planned (command), and Mixed economies.

Free market economy

System where decisions are driven by consumers and firms; private ownership; price signals; limited government intervention.

Centrally planned economy

System where the government owns resources and makes production and distribution decisions.

Mixed economy

An economy that combines market forces with some government intervention; most countries are mixed.

Central concepts (9 core ideas)

Scarcity, Choice, Efficiency, Equity, Economic well-being, Sustainability, Change, Interdependence, Intervention.

Equity

Fair distribution of wealth and resources across society.

Sustainability

Meeting present needs without compromising the ability of future generations to meet theirs.

Interdependence

Mutual dependence between economic decision-makers (households, firms, government, banks, foreign sector).

Economic well-being

A measure of living standards and quality of life in an economy.

Intervention (in economics)

Government involvement in the economy to influence outcomes (regulation, spending, subsidies).

What to produce, how to produce, for whom to produce

The three basic economic questions economies must answer when allocating resources.