Microeconomics (Full Course Terms)

Macroeconomics

Economies as a whole

Microeconomics

Individuals, households, and firms.

Production Possibilities Curve (PPC)

AKA Production Possibilities Frontier (PPF) is a graphical model used in economics to illustrate the trade-offs, opportunity costs, and maximum potential output combinations of two goods that an economy can produce using its limited resources

Scarcity

The conflict that arises from competition over a society’s limited resources.

Resources

The factors used to produce goods and services

The 4 Economic Resources

Land, Labor, Capital, and Entrepreneurship

Comparative Advantage

An economy's or individual's ability to produce a specific good or service at a lower opportunity cost than trading partners.

Absolute advantage

The ability of an individual, firm, or country to produce a specific good or service more efficiently—using fewer resources or less time—than a competitor.

Opportunity Cost

the loss of potential gain from other options/opportunities when you choose one specific option.

Opportunity cost = return of best alternative - return of chosen option

Trade-off

What you give up in order to get something

Imports

Buying goods or services from other countries

Exports

Selling domestic products to foreign buyers

Equilibruim

Where supply and demand curves intersect. Both quantity demanded (1st point) and quantity supplied (2nd point) are equal at the 3rd point .

Individual Choice

The decision-making process by consumers and firms regarding the allocation of resources, based on preferences and constraints.

Marginal Decisions

Decisions made based on the additional benefits versus additional costs of consuming or producing one more unit of a good or service.

AKA Decisions about doing a bit more or a bit less of an activity.

Marginal Analysis

The examination of the additional benefits (Marginal Benefit) and additional costs (Marginal Cost) associated with a decision, focusing on how small changes in consumption or production affect overall outcomes.

Interaction

My choice affect yours and vice versa

Gains from Trade

People get more through trade than through self-sufficiency

Specialization

The process by which individuals or entities focus on a limited scope of production or tasks that they are good at and/or have the resources for.

Efficient

Taking all opportunities to make people better off without hurting others.

Equity

Fair distribution of resources and opportunities among individuals or groups.

Market Failure

When individual self-interest leads to inefficiency.

Circular-flow diagram

A visual model that illustrates how money and goods flow through the economy, showing interactions between households and firms.

Firm

An organization that produces goods and services for sale

Household

A person or a group of people that share their income.

Model

A simplified representation of a real situation that is used to better understand real-life situations

Other Things Equal assumption

The assumption that all other relevant factors remain unchanged while analyzing the effect of a change in one factor.This is often used in economic models to isolate the impact of specific changes.

Mortgage-backed securities (MBSs)

An asset that entitles its owner to a stream of earnings based on the payments made by thousands of people on their home loans.

Economic growth

An outward shift of the production possibility frontier because production possibilities are expanded, allowing the economy to produce more of everything.

Barter

A form of trade where people directly exchange goods or services they have for goods or services they want, rather than using money.

Factor markets

Markets where factors of production, such as labor and capital, are bought and sold.

Income distribution

How total income is divided among the owners of the various factors of production, determined by factor markets.

Positive economics

The branch of economic analysis that describes the way the economy actually works.

Normative economics

The branch of economic analysis that makes prescriptions about the way the economy should work

Forecast

The process of predicting future economic conditions based on current and past data trends.

International Monetary Fund

An international organization that provides advice and loans to countries experiencing economic difficulties.

Competitive Market

A market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold.

Supply and Demand Model

A model of how a competitive market works.

Consists of five key elements: the demand curve, the supply curve, the set of factors that cause curves to shift, the market equilibrium, and the way the equilibrium changes when curves shift.

Demand Schedule

A table that shows how much of a good or service consumers will want to buy at different prices.

Quantity demanded

The actual amount of a good or service consumers are willing to buy at some specific price.

Demand Curve

A graphical representation of the demand schedule, showing the relationship between quantity demanded and price.

Law of Demand

The principle that, other things equal, a higher price for a good or service leads people to demand a smaller quantity of 그 good or service.Shift of the demand curve

Shift of the Demand Curve

A change in the quantity demanded at any given price, represented by the change of the original demand curve to a new position, denoted by a new demand curve.

This shift can occur due to factors such as changes in consumer income, preferences, and future expectations (Non-price factors).

Movement along the Demand Curve

A change in the quantity demanded of a good that is the result of a change in that good’s price. This movement results in a slide along the existing demand curve, reflecting how quantity demanded varies directly with price changes.

Substitutes

Two goods are substitutes if a fall in the price of one of the goods makes consumers less willing to buy the other good.

Complements

Two goods are complements if a fall in the price of one good makes people more willing to buy the other good.

Normal good

A good for which a rise in income increases the demand for the good.

Inferior good

A good for which a rise in income decreases the demand for the good.

Individual demand curve

A graphical representation showing the relationship between quantity demanded and price for a single consumer

Market demand curve

The graphical representation of the horizontal sum of the individual demand curves of all consumers in a market.

Congestion pricing

A policy where a charge is imposed on cars entering a city center during business hours to reduce traffic by raising the price of driving.

Supply schedule

A table showing how much of a good or service would be supplied at different prices.

Quantity supplied

The actual amount of a good or service people are willing to sell at some specific price.

Supply curve

A graphical representation showing how much of a good or service people are willing to sell at any given price

Movement along the supply curve

A change in the quantity supplied of a good that is the result of a change in that good’s price.

Input

A good that is used to produce another good

Individual supply curve

A graphical representation showing the relationship between quantity supplied and price for an individual producer

Market supply curve

The horizontal sum of the individual supply curves of all firms in a market

Equilibrium price / Market Clearing Price

The price at which the quantity demanded of a good equals the quantity supplied of that good.

Equilibrium quantity

The quantity of a good bought and sold at the equilibrium price

Surplus

A situation where the quantity supplied exceeds the quantity demanded, which occurs when the price is above its equilibrium level

Shortage

A situation where the quantity demanded exceeds the quantity supplied, which occurs when the price is below its equilibrium level

Globalization

The phenomenon characterized by growing economic linkages and connections among different countries.

Ricardian model of international trade

An economic model that analyzes trade patterns based on the assumption that opportunity costs remain constant.

Autarky

A state in which a country is self-sufficient and does not engage in trade with other nations.

Heckscher–Ohlin model

A model stating that a country has a comparative advantage in goods that are intensive in the factors it possesses in abundance

Factor intensity

A measure used to determine which production factor is utilized in relatively greater quantities compared to others during manufacturing

Increasing returns to scale

A production characteristic where the productivity of resources increases as the total quantity of output grows.

World price

The specific price level at which a good can be bought or sold in the international market.

Exporting industries

Industrial sectors that produce goods and services intended for sale in foreign markets.

Import-competing industries

Domestic sectors that produce goods and services which are also being brought in from other countries.

Free trade

A policy environment where the government does not intervene to increase or decrease natural levels of export and import.

Trade protection

Government policies, often called protection, designed to limit imports and shield domestic industries from foreign competition.

Tariff

A tax imposed on imported goods that increases the domestic price above the world price, often resulting in a deadweight loss.

Import quota

A legal restriction that sets a maximum limit on the quantity of a specific good that can be imported.

International trade agreements

Treaties where countries mutually pledge to reduce trade protections against each other's exports.

World Trade Organization (WTO)

A multinational body responsible for negotiating global trade deals and resolving disputes between member states.

North American Free Trade Agreement (NAFTA)

A trade treaty established between the United States, Canada, and Mexico.

European Union (EU)

A customs union currently consisting of 2727 European nations.

Offshore outsourcing

The business practice of hiring people in a foreign country to perform specific tasks or services.

Pauper labor argument

A common fallacy regarding international trade that is refuted by the fact that low wages in poor countries are actually caused by low overall productivity

Skill-intensive goods

Products that require a high ratio of human capital or highly educated workers for production, common in U.S. exports.