Business studies

Economics

The study of how agents choose to allocate scarce resources and how those choices affect society. Example: Deciding whether to spend your free hour studying for an exam or working a part-time job

Scarcity

The situation of having unlimited wants in a world of limited resources (Niukkuus). Example: There are only 24 hours in a day, so you cannot attend class and go to a concert at the exact same time.

Economic Agent

An individual or a group that makes choices (Talouden pitäjä). Example: A college student choosing a major, or Apple setting the price for a new iPhone.

Equilibrium

The second principle of economics: a situation in which everyone is simultaneously optimizing, so nobody would benefit personally by changing their behavior (Tasapaino). Example: Checkout lines at a supermarket being roughly the same length because people move to the shortest line.

Empiricism

The third principle of economics: analysis that uses data to test theories and determine causation. (kokemustieto). Example: Using salary statistics from thousands of graduates to see if a college degree increases income.

Positive Economics

Analysis that generates objective descriptions or predictions about the world that can be verified with data. Example: "In 2023, the average salary for college graduates was higher than for high school graduates."

Normative Economics

Analysis that prescribes what an individual or society ought to do (involves subjective judgements). Example: "The government should raise the minimum wage to help low-income workers."

Microeconomics

The study of how individuals, households, firms, and governments make choices and how those choices affect prices and resource allocation. Example: Analyzing how a tax on sugary drinks affects a family's soda purchases.

Macroeconomics

The study of the economy as a whole, focusing on economy-wide phenomena like growth rate, inflation, and unemployment. Example: Studying how the national central bank changing interest rates affects overall countrywide inflation.

Opportunity Cost

The best alternative use of a resource (what is given up when making a choice). Example: The opportunity cost of going to a 2-hour movie is the $20 you could have earned working at your job during those 2 hours.

Cost-Benefit Analysis

A calculation that adds up costs and benefits using a common unit of measurement to identify the alternative with the greatest net benefit. Example: Calculating if driving to a holiday destination saves more money than the value of the extra hours spent driving instead of flying.

The Scientific Method

The ongoing process used to develop models of the world and test those models with data. Example: Creating a model about study hours and grades, then testing it by collecting test scores from students.

Economic Model

A simplified description or representation of the world (more important to be simple and useful than precisely accurate). Example: A subway map that simplifies real geographic distances so commuters can easily find their route.

Data

Facts, measurements, or statistics that describe the world. Example: A spreadsheet listing the hourly wages and years of education for 1,000 employees.

Mean

The sum of all different values divided by the number of values (average) (keskiarvo). Example: If three workers earn $10, $15, and $35 per hour, the mean wage is $20 per hour.

Argument by Anecdote

The mistake of trying to judge a statistical relationship based on a small sample or a few anecdotes. Example: Claiming college is useless because Bill Gates dropped out and became a billionaire.

Causation

When one thing directly affects another through a cause-and-effect relationship (Kausaliteetti). Example: Putting a ice cube in a hot oven causes it to melt.

Correlation

A mutual relationship or statistical connection between two things (does not imply causation). Example: Ice cream sales and sunburn cases both rise in the summer, but ice cream does not cause sunburns.

Positive Correlation

A relationship where two variables tend to move in the same direction. Example: As height increases, shoe size generally increases as well.

Negative Correlation

A relationship where two variables tend to move in opposite directions. Example: As the temperature drops outside, heating bill costs generally increase.

Omitted Variable

Something left out of a study that would explain why two variables are correlated (puuttuva muuttuja). Example: Christmas is … that explains why holiday sales rise at the same time red-themed store ads increase.

Reverse Causality

The situation in which the direction of cause and effect is mixed up. Example: Assuming that buying treadmill exercise bikes makes people healthy, when in reality healthy people are more likely to buy treadmills.

Experiment

A controlled method of investigating causal relationships among variables using randomization. Example: Randomly giving one group of students a new study app while another group uses paper notes to test which improves test scores more.

Randomization

The assignment of subjects by chance, rather than by choice, to a treatment or control group. Example: Flipping a coin to decide whether a patient receives a new medicine or a standard treatment.

Natural Experiment

An empirical study in which a process out of the control of the experimenter assigns subjects to groups in a random or nearly random way. Example: Studying wage differences after a country changes its mandatory minimum school-leaving age law.

Absolute advantage

An advantage where an individual or country can produce more of a good using the same resources, or the same amount using fewer resources.

Scarce

Insufficient for the demand; in short supply relative to unlimited wants

Aggregate

To add together several amounts or things to form a total.

GDP

Gross Domestic Product; the total value of goods and services produced within a country over a specific period.

Comparative advantage

An advantage where an individual or country has a lower opportunity cost in producing a good than others. Example: A lawyer types 100 words per minute but earns $200/hour practicing law. A secretary types 60 words per minute but earns $25/hour.

Commodity (hyödyke)

A substance or product, such as a raw material or primary product, that can be traded, bought, or sold.

Law of diminishing returns

The economic principle stating that each extra worker (or input) adds less to total output than the previous extra worker added

Free markets

Markets in which governments do not intervene.

Trade-off

giving up one thing to get something else

Budget constraint

Shows the bundles of goods or services that a consumer can choose given his or her limited budget

Representative sample

A small group of participants or data points selected from a larger population that accurately reflects the characteristics of the entire group, ensuring that the study's conclusions can be reliably generalized to the broader workforce or population.

Experiment vs natural experiment

In a true experiment, the researcher actively manipulates the independent variable and randomly assigns subjects; in a natural experiment, the variable changes due to external or naturally occurring events outside the researcher's control.

Optimization

The process where economic agents choose the best feasible option by weighing all known costs and benefits (pros and cons).

Monetary value

Financial worth or expected cash price of a good, service, asset, or resource expressed in units of currency.

A model

Simplified description, or representation of the world

Command economy

An economic system in which the government decides what will be produced and for whom it will be produced. Example: A Soviet-style system where a central agency decided production volumes and prices

Production Possibility Frontier (PPF)

A curve that shows, for each output of one good, the maximum amount of the other good that can be produced. Example: A curve showing the maximum number of cars or computers a country can produce using the same factors of production.

Production efficiency

A situation in which more output of one good can be obtained only by sacrificing output of other goods. Example: The economy is operating at full capacity without resources wasted on unemployment or idle machinery.

Income distribution

Tells how total income is divided between different groups or individuals. Example: Monitoring how large a share of a nation's income goes to low-income groups compared to high-income groups

Standard of living

A measure that includes the necessities of life, goods, and services that contribute to people's material well-being. Example: Housing size, availability of food, and access to healthcare.