Introduction to Economics and Macroeconomic Principles

Vocabulary practice flashcards generated from lecture notes covering core economic principles, trade, supply/demand, and GDP measurement.

Unemployment

The fraction of people in an economy who are actively looking for a job, but cannot find one.

Labor Force

The total sum of employed and unemployed individuals in an economy.

Inflation

The percentage change in general price levels over time, which serves as a rough measure of changes in the cost of living.

Inflation Formula

Calculated as $\text{Inflation in year } t = \frac{P_t - P_{t-1}}{P_{t-1}} \times 100$, where $P_t$ represents the overall price level in year $t$.

Trade Balance

The difference between the value of a nation's exports and its imports, also referred to as Net Exports.

Trade Deficit

A condition that occurs when a country's imports exceed its exports, indicating a negative trade balance and that the country is consuming more than it produces.

Budget Deficit

The difference between the government's tax revenue and its expenditures when expenditures exceed tax revenue, requiring the government to borrow.

Scarcity

The limited nature of society's resources relative to human wants and needs.

Economics

The study of how society allocates its scarce resources among competing uses.

Macroeconomics

The study of economy-wide phenomena, focusing on aggregate economy structure, behavior, and widespread changes that affect households, firms, and markets simultaneously.

Opportunity Cost

Whatever must be given up in order to obtain an item; it is the relevant cost for economic decision-making.

Marginal Changes

Small, incremental adjustments made to an existing plan of action or baseline choice.

Incentive

Something that induces a person to act, such as the prospect of a reward or a punishment.

Market

A group of buyers and sellers of a particular good or service, who do not necessarily need to be in the same physical location.

Market Economy

An economic system that allocates resources through the decentralized decisions of many households and firms as they interact in markets.

Invisible Hand

Adam Smith's concept in The Wealth of Nations (1776) describing how prices guide self-interested households and firms to make decisions that promote general economic well-being.

Market Failure

A situation in which a market left on its own fails to allocate society's resources efficiently.

Externality

The uncompensated impact of one person's or firm's actions on the well-being of an uninvolved bystander.

Market Power

The capability of a single economic buyer or seller (or a small group) to exert substantial influence on market prices.

Circular-Flow Diagram

A visual model of the economy showing how payments and resources flow through markets among households and firms.

Production Possibility Frontier (PPF)

A graph showing all maximum output combinations that the economy can produce given its available resources and technology.

Microeconomics

The study of how individual households and firms make decisions and interact in specific markets.

Positive Statements

Descriptive claims made by economists that attempt to describe the world as it is, which can be empirically tested and evaluated.

Normative Statements

Prescriptive claims made by policy advisors that express judgments about how the world should be, which cannot be tested using data alone.

Absolute Advantage

The ability of a producer to produce a good using fewer inputs than another producer.

Comparative Advantage

The ability of a producer to produce a good at a lower opportunity cost than another producer.

Competitive Market

A market with many buyers and sellers where each individual has a negligible effect on the market price.

Perfectly Competitive Market

A market structure where all goods offered for sale are identical and buyers and sellers are so numerous that no single participant can influence the market price, making everyone a price taker.

Quantity Demanded

The specific amount of a good or service that buyers are willing and able to purchase at a given price.

Law of Demand

The economic principle asserting that, all else equal, the quantity demanded of a good falls when the price of that good rises.

Demand Schedule

A table that displays the relationship between the price of a good and the quantity demanded.

Normal Good

A good for which an increase in consumer income leads to an increase in demand at every price, shifting the demand curve to the right.

Inferior Good

A good for which an increase in consumer income leads to a decrease in demand at every price, shifting the demand curve to the left.

Substitutes

Two goods for which an increase in the price of one leads to an increase in the demand for the other.

Complements

Two goods for which an increase in the price of one leads to a decrease in the demand for the other.

Gross Domestic Product (GDP)

The market value of all final goods and services produced within a country in a given period of time.

Final Goods

Goods intended directly for the end user, whose total value is explicitly included in GDP.

Intermediate Goods

Goods used as components or ingredients in the production of other goods, which are excluded from direct GDP calculations to prevent double counting.

Three Approaches to Measuring GDP

The three equivalent methods used by the Bureau of Economic Analysis (BEA) to measure total GDP: Value Added approach (production side), Expenditure approach ($C + I + G + NX$), and Income approach (wages + capital income).