Introduction to Economics

These flashcards cover key vocabulary and concepts related to economics, including definitions and fundamental relationships within economic systems.

Economics

A branch of social science that deals with the study of scarce resources, its allocation, and its utilization to satisfy unlimited human wants and needs.

Scarce Resources

Limited resources available to meet unlimited human wants and needs.

Traditional Economy

An economic system where production decisions are made according to customs and traditions passed down through generations.

Command Economy

An economic system where decision-making is centralized in the government or planning committee.

Market Economy

An economic system where markets play a significant role; also known as a free market economy.

Mixed Economy

An economic system that combines elements of central planning with competitive markets.

Production

The creation of goods and services.

Consumption

The direct utilization of goods and services by consumers.

Distribution

The process of allocating scarce resources to households, businesses, and trading of goods and services.

Positive Economics

Economic analysis that describes economic conditions as they are, without value judgments.

Normative Economics

Economic analysis that prescribes how economic relationships should be, involving value judgments.

Macroeconomics

The branch of economics dealing with the problems of the whole economy.

Microeconomics

The branch of economics focusing on the behavior of individual economic units like households and firms.

Supply and Demand

The theory that explains the interaction between sellers and buyers, determining price and quantity.

Market

A mechanism through which buyers and sellers interact to determine the price and quantity of goods and services.

Price

The value of goods and services expressed in terms of money.

Law of Demand

States that as price increases, quantity demanded decreases, and vice versa.

Ceteris Paribus

Latin phrase meaning 'all else being equal', used in economics to isolate the effect of one variable by holding others constant.

Income Effect

When a change in price affects consumer purchasing power and thus their demand.

Substitution Effect

When consumers replace goods with cheaper alternatives as their prices change.

Demand Function

The representation of the relationship between demand and its determinants, expressed mathematically.

Supply

The maximum quantity of goods and services producers can offer in the market.

Quantity Supplied

The amount of goods and services that producers are willing and able to sell at a specific time, price, and place.

Law of Supply

States that as the price increases, quantity supplied also increases, and vice versa.

Market Equilibrium

The state when quantity demanded equals quantity supplied.

Shortage

A condition in which quantity demanded exceeds quantity supplied.

Surplus

A situation where quantity supplied is greater than quantity demanded.

Price Ceiling

The maximum legal price at which a good or service can be sold, imposed by the government.

Price Floor

The minimum legal price set by the government for a good or service.