A Little History of Economics - Key Concepts

Comprehensive vocabulary flashcards covering the history of economic thought, key theories, and influential economists from Niall Kishtainy's 'A Little History of Economics'.

Economics

The study of how societies use their scarce resources to produce useful goods and distribute them among different people.

Scarcity

The fundamental economic problem that resources are limited while human desires are potentially unlimited, necessitating choices.

Opportunity Cost

The value of the next best alternative that is given up when making a choice.

Positive Economics

A branch of economics that describes and explains economic phenomena as they are, seeking to establish scientific laws without making value judgements.

Normative Economics

A branch of economics that involves value judgements about what the economy should be like or what particular policy actions should be recommended.

Capitalism

An economic system in which most resources are privately owned and resource allocation is determined by profit-seeking individuals and firms in a market.

Division of Labour

The breakdown of a production process into small, specialized tasks to improve efficiency, a concept famously illustrated by Adam Smith's pin factory.

Invisible Hand

Adam Smith's metaphor describing how individuals pursuing their own self-interest in a free market can unintentionally promote the well-being of society.

Laissez-faire

A French phrase meaning "allow to do," referring to a hands-off economic policy where the government interferes as little as possible in the market.

Comparative Advantage

David Ricardo's principle that countries should specialize in producing goods they can make relatively more efficiently, even if they are less efficient than other nations in absolute terms.

Malthusian Trap

The theory that population growth tends to outpace food supply, inevitably leading to poverty, famine, and "misery and vice" unless checked.

Surplus Value

In Marxian economics, the difference between the total value created by a worker and the subsistence wage paid to them, which is kept by the capitalist as profit.

Diminishing Marginal Utility

The principle that as a consumer consumes more of a good, the extra satisfaction gained from each additional unit decreases.

Equilibrium

A state in which market supply and demand balance each other, and as a result, prices become stable.

Externalities

Unintended side effects of production or consumption that affect third parties not involved in the transaction, such as pollution (negative) or research (positive).

Monopolistic Competition

A market structure identified by Joan Robinson and Edward Chamberlin where many firms sell products that are similar but not identical, often through branding.

Say's Law

The classical economic claim that "supply creates its own demand," implying that general overproduction or recessions should be impossible.

Keynesian Economics

The theory that government spending and intervention are necessary to manage demand and prevent deep recessions or high unemployment.

Creative Destruction

Joseph Schumpeter's term for the process by which innovation and new technologies constantly revolutionize the economic structure from within, destroying old ones.

The Prisoners' Dilemma

A game theory model showing why two rational individuals might not cooperate, even if it appears in their best interest to do so.

Stagflation

An economic condition characterized by slow growth and high unemployment (stagnation) accompanied by rising prices (inflation).

Monetarism

The school of thought led by Milton Friedman emphasizing the role of the money supply in determining national income and inflation.

Efficient Markets Hypothesis

The theory that financial market prices reflect all available information, making it impossible to consistently "beat the market" through prediction.

Time Inconsistency

The phenomenon where a policy that is optimal today is no longer considered optimal in the future, often leading to broken government promises.

Human Development

Amartya Sen's approach to progress, focusing on expanding human "capabilities" (such as health and education) rather than just increasing national income.

Asymmetric Information

A situation, explored by George Akerlof, where one party in an economic transaction has more or better information than the other (e.g., the "market for lemons").

Loss Aversion

A behavioral economic principle that people feel the pain of a loss much more strongly than the joy of an equivalent gain.

Minsky Moment

A sudden collapse of asset values following a long period of speculative lending and debt accumulation, named after Hyman Minsky.