Introduction to Economics: Models, Markets, and Trade

Vocabulary flashcards covering fundamental economic concepts including economic models, the production possibilities frontier, comparative advantage, circular-flow relationships, positive versus normative economics, and basic supply and demand principles.

Economic model

A simplified tool for understanding the economy.

Purpose of economic models

To explain, predict, and compare economic choices.

Production Possibilities Frontier (PPF)

A model showing the possible combinations of two goods an economy can produce.

Point on the PPF

Indicates that production is possible and efficient.

Point inside the PPF

Indicates that resources are being underused or wasted.

Point outside the PPF

Indicates that it is not currently possible to produce that much.

Factors that shift a PPF outward

More resources, better skills, or improved technology.

Opportunity cost

What you give up to get something else.

Comparative advantage

Producing something at a lower opportunity cost than someone else.

Purpose of specialization and trade

To focus on what people or countries produce at lower opportunity cost and benefit from trade.

Circular-flow diagram

Shows how households and firms exchange resources, goods, services, and money.

Household provisions to firms

Workers and other resources; households also buy firms' products.

Firm provisions to households

Income, goods, and services.

Positive economics

Testable statements about what is or what will happen.

Normative economics

Opinions about what should happen.

Reasons economists disagree

They may use different assumptions, interpret evidence differently, or have different values.

Competitive market

A market with many buyers and sellers, where no single person or business controls the price.

Demand

How much buyers are willing and able to buy at different prices.

Law of demand

When price goes up, buyers usually buy less; when price goes down, they usually buy more.

Supply

How much sellers are willing and able to sell at different prices.

Law of supply

When price goes up, sellers usually offer more; when price goes down, they usually offer less.

Equilibrium price

The price where the amount buyers want equals the amount sellers offer.