Introduction to Economics - Flashcards

A comprehensive set of flashcards covering key concepts from the economics lecture notes, including basic definitions, major theories, and institutional contexts.

What is economics?

The study of how individuals and societies decide how to use scarce resources to fulfill wants and needs.

What is Macroeconomics?

The big-picture branch of economics dealing with growth, employment, and overall performance of an economy; decisions by large groups (like countries).

What is Microeconomics?

The branch focusing on how individuals and firms make economic decisions.

What are the four economic questions in our society?

What to produce, how to produce, for whom to produce, and how the system governs change/growth.

What is scarcity?

The fundamental problem of unlimited wants but limited resources.

What are needs vs. wants?

Needs are essentials for survival; wants are desirable items beyond basics (luxuries).

What is a trade-off?

Choosing one option over others due to scarcity.

What is opportunity cost?

The value of the next best alternative forgone when a choice is made.

What is production?

The process of creating goods and services; production can be by individuals, firms, or nations.

What is the difference between goods and services?

Goods are tangible items; services are intangible work performed for others.

What are the four factors of production?

Land, Labor, Capital, and Entrepreneurship.

What is land as a factor of production?

Natural resources found on, in, or under the land.

What is labor as a factor of production?

Physical and intellectual work by people (manpower).

What is capital as a factor of production?

Tools, machinery, factories, money; includes human capital (brainpower).

What is entrepreneurship?

Management and innovators who organize the factors of production to provide goods and services.

What are capital goods vs. consumer goods?

Capital goods are used to make other goods; consumer goods are final products purchased by consumers.

What is GDP?

Gross Domestic Product—the total dollar value of all final goods and services produced within a country in a year.

What are fixed costs?

Costs a business must pay regularly; typically do not vary much month to month.

What are variable costs?

Costs that change with production levels (labor, raw materials).

What is total costs?

Total Costs = Fixed Costs + Variable Costs.

What is marginal cost?

The additional cost of producing the next unit.

What is profit?

The difference between Revenues and Total Costs; the motive for business.

What is cost-benefit analysis?

Weighing marginal costs against marginal benefits to decide whether to produce or undertake a venture; proceed if benefits exceed costs.

Why can immediate spending harm long-term prosperity?

Immediate gratification may forgo future benefits; long-term savings/investments matter.

What is a command economy?

Economic questions are answered by the government; little private ownership and limited choices.

Who was Karl Marx?

19th-century economist and philosopher; father of communism; argued government should control the economy.

What characterizes a free market economy?

Producers and consumers answer questions; limited government; private property; variety of choices.

Who is Adam Smith and what is the invisible hand?

18th-century economist; Wealth of Nations; markets regulate themselves through self-interest and competition—the invisible hand.

What is laissez-faire?

Government stays out of business practices; markets determine production and distribution.

What are the Principles of Capitalism?

Competition, voluntary exchange, private property, consumer sovereignty, and profit motive.

What is a mixed economy?

An economy with both government involvement and market mechanisms; features elements of socialism and capitalism.

What is Keynesian economics?

Government should intervene in economic emergencies through fiscal and monetary policy to smooth the business cycle.

What is the Free Enterprise System?

A market economy where producers and consumers are free to engage with minimal government interference.

What is private property?

Individuals and businesses have the right to own and use property.

What is consumer sovereignty?

Consumers decide what gets produced through their purchasing choices.

What is the Profit Motive?

The desire to earn profits drives production, innovation, and economic activity.

What are the three big players in the national economy?

The U.S. Treasury Department, the Federal Reserve, and the FDIC.

What does the Federal Reserve do?

Central bank that conducts monetary policy, supervises banks, maintains financial stability, and provides financial services.

What does the FDIC do?

Insures deposits up to $250,000; promotes public confidence in the banking system; monitors risks.

What is monetary policy?

Actions by a central bank to manage money supply and interest rates to promote growth and stability.

What is fiscal policy?

Government decisions about taxation and spending to influence the economy.

What is inflation?

The rate at which the general price level rises, reducing purchasing power.

What is deflation?

A fall in the general price level; negative inflation.

What is a recession?

A significant decline in economic activity lasting longer than a few months; two consecutive quarters of negative GDP growth is a technical indicator.

What is a depression?

A severe and prolonged downturn in economic activity, typically lasting two or more years.

What is CPI?

Consumer Price Index; measures price changes in a basket of goods and services, weighted by importance.

What is the Consumer Confidence Index (CCI)?

A survey-based index measuring how optimistic or pessimistic consumers are about the economy.

What is unemployment?

The condition of actively job-seeking individuals who are unable to find work; used as an economy health indicator.

What is the Balance of Trade?

The difference between a country’s imports and exports; deficit if imports exceed exports; surplus if exports exceed imports.

What is the Law of Supply?

As price rises, the quantity supplied increases; higher prices incentivize producers to supply more.

What is the Law of Demand?

As price falls, the quantity demanded increases; consumers buy more at lower prices.

What is equilibrium price?

The price at which quantity supplied equals quantity demanded.

What are surplus and shortage?

Surplus: supply exceeds demand; Shortage: demand exceeds supply.

What causes a decrease in supply?

Shifts left due to productivity, resource quality, government regulation, resource price, and number of suppliers.

What causes an increase in demand?

Shifts right due to tastes, confidence, substitutes/complements, income, and population.

What is blue collar vs white collar?

Blue collar: manual labor; wages. White collar: professional/managerial work; salary.

What is downsizing?

Laying off employees to cut costs; outsourcing; bankruptcy; going out of business.

What is collective bargaining?

Union representatives negotiate contracts with the employer; compromise; strikes if no agreement.