Global Economy Test 1

Command Economy

The government decides what to produce, how much, and who gets it. 

Market Economy

People and businesses decide what to make, buy, and sell based on what others want.

Opportunity Cost

The loss of potential gain from other alternatives when one option is chosen.

Trade-Off

Every choice means giving up something else and to gain one benefit, you must sacrifice another.

Utility 

The satisfaction or benefit derived from consuming a good or service. It measures preferences and choices in economic contexts.

Exchangeable Value

The value of a good or service that can be traded or exchanged for another good or service.

Transaction

An agreement between two parties to exchange goods, services, or financial assets.

Transfer

A one way exchange where something is given with no return expected 

Necessary Condition for a Transaction

Equation (E(u) ≥ E(c))

Incentive

Something that encourages or motivates economic actors to do something

Disincentive

Something that discourages people from doing something.

Disposable Income

The income left after paying tax

Consumption

Spending money on goods or services

Saving

The money not spent, kept in banks or investments.

Imports

Goods bought from other countries

Exports

Goods sold to other countries

Labor Income

Money earned from working

Rental Income

Money from owning property or land

Capital Income

Money from selling assets

Transfer Income

Money received as a gift or aid

Assets

Something that you own that has exchangeable value in the economy.

Liability

Something you owe or must pay in the future

Liquidity

How easily an asset can be turned into cash

Confirmation Bias

The tendency to believe and focus on information that supports what you already think, and ignore what doesn’t.

Chance Correlation

When two things seem related just by coincidence, not because one causes the other.

Reverse Causality Bias

When people think A causes B, but actually B causes A.

Omitted Variable Bias

When a hidden third factor causes both A and B, making them look directly related when they’re not.