ECON 102 Exam 1 Vocabulary Flashcards

A complete set of vocabulary flashcards covering key definitions and foundational concepts for ECON 102 Exam 1 (Chapters 1 to 5).

Benefit

What you gain from doing something.

Cost

What you give up or sacrifice by doing something.

Marginality

The analytical approach in economics focusing on additional or 'one more' unit of a choice or activity.

Rationality

The decision-making assumption that individuals compare expected benefits and costs to choose the option that best serves their objectives.

Incentive

Something that encourages (positive incentive) or discourages (negative incentive) a particular behavior.

Unintended Consequence

An outcome resulting from a decision or policy that was not part of the original goal.

Scarcity

The fundamental economic condition where available resources are limited while human wants are effectively unlimited.

Economics

The study of how individuals and society make choices under conditions of scarcity.

Microeconomics

The branch of economics that examines individual decision-makers and specific markets, such as consumers or businesses.

Macroeconomics

The branch of economics that studies the economy as a whole, focusing on aggregate variables like inflation, unemployment, and national GDP.

Economic Model

A simplified representation of reality used by economists to explain and analyze relationships between economic variables.

Ceteris Paribus

A Latin term meaning 'all else equal,' used to isolate the relationship between two variables by holding all other factors constant.

Positive Statement

An objective, testable claim describing what is, which can be evaluated or verified using evidence.

Normative Statement

A subjective claim describing what should be, reflecting personal value judgments or opinions.

Direct Relationship

A relationship between two variables where both move in the same direction.

Inverse Relationship

A relationship between two variables where they move in opposite directions.

Inputs

The resources, such as labor, land, machinery, and raw materials, transformed to produce outputs.

Opportunity Cost

The value of the single next-best alternative given up when making a decision.

Production Possibilities Curve (PPC)

A graphical representation showing the maximum output combinations of two goods an economy can produce with available resources and technology.

Absolute Advantage

The ability to produce more output using the same quantity of resources, or the same output using fewer resources, compared to another producer.

Comparative Advantage

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

Market

An arrangement that enables buyers and sellers to interact and execute exchanges of goods or services.

Quantity Demanded

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

Demand Curve

A graphical line illustrating the inverse relationship between price and quantity demanded, sloping downward.

Quantity Supplied

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

Change in Quantity Demanded

A movement along an existing demand curve caused solely by a change in the price of the good itself.

Change in Demand

A shift of the entire demand curve caused by non-price determinants such as income, preferences, or prices of related goods.

Substitutes

Pairs of goods that can replace each other in consumption; an increase in the price of one raises demand for the other.

Complements

Pairs of goods used together; an increase in the price of one lowers demand for the other.

Equilibrium

The market condition where quantity demanded equals quantity supplied ($Q_D = Q_S$), determining market price and quantity.

Surplus

A market condition occurring when quantity supplied exceeds quantity demanded ($Q_S > Q_D$) at a given price.

Shortage

A market condition occurring when quantity demanded exceeds quantity supplied ($Q_D > Q_S$) at a given price.

Price Ceiling

A legally mandated maximum price that sellers are permitted to charge for a good or service.

Price Floor

A legally mandated minimum price that buyers are required to pay for a good or service.

Market Failure

A scenario in which a market fails to allocate resources efficiently, failing to maximize total economic well-being.

Negative Externality

A cost imposed on a third party outside of a market transaction, causing social costs to exceed private costs.

Positive Externality

A benefit received by a third party outside of a market transaction, causing social benefits to exceed private benefits.

Rivalrous

A characteristic of a good where one individual's consumption reduces the quantity available for others to consume.

Excludable

A characteristic of a good where individuals can be effectively prevented from consuming or accessing it if they do not pay.

Tragedy of the Commons

The overexploitation and depletion of a shared, open-access resource caused by individuals acting in their own self-interest when costs are shared by the community.