Principles of Economic Theory Flashcards

Vocabulary-style study flashcards for Principles of Economic Theory covering foundational microeconomic and macroeconomic principles grounded strictly in the provided lecture notes.

Political Economy (Economic Science)

The branch of social science that studies the economic problems arising within a society, structured around four primary questions: what and how much to produce, how to produce, how to distribute output, and how to foster economic growth.

Robinson Crusoe Economy

An idealized model of a single-person economy where all economic decisions regarding resource allocation, production technology, and growth are made by one individual.

Economic Needs

Human wants and desires that require economic goods or services for their satisfaction.

Evolution of Needs

The property of human needs characterized by the differentiation of goods used over time to satisfy the exact same underlying need.

Multiplication of Needs

The creation of new human needs over time driven by technological progress, imitation, habit formation, and advertising.

Satiety (Saturation)

The temporary complete satisfaction of a specific economic need as the quantity of a good consumed increases within a given time period.

Free Goods

Goods provided freely by nature in unlimited abundance relative to demand (e.g., sunlight) that do not form the subject matter of economic science.

Economic Goods (Products)

Goods produced through human productive effort whose defining feature is their relative scarcity compared to human needs.

Durable and Non-Durable Goods

Durable goods can be used repeatedly for the same purpose without altering their physical form, whereas non-durable goods can only be used once for their intended purpose.

Capital Goods

Goods used in the production process to produce other goods and services, such as machinery, tools, industrial buildings, and infrastructure.

Consumer Goods

Goods utilized directly by households to satisfy immediate human needs.

Market

The broad mechanism and set of institutions, spaces, and communication channels through which buyers and sellers interact to execute purchase and sale transactions.

Household (Νοικοκυριό)

An economic decision-making unit consisting of one or more individuals who pool income and jointly decide on consumption and saving to maximize total satisfaction.

Firm (Επιχείρηση)

A productive unit that organizes factors of production to produce goods or services, guided by the objective of profit maximization.

Labor Union (Εργατικό Σωματείο)

An organization of workers formed to advance their collective economic interests, negotiate working conditions, and counterbalance employer bargaining power.

Factors of Production

The resource inputs utilized in the production process, classified into Labor, Land (Soil), Capital, and Entrepreneurship.

Human Capital

The cumulative stock of knowledge, skills, and expertise acquired by individuals through education, training, and practical experience.

Main Economic Problem

The fundamental conflict arising from the gap between unlimited human wants and the relative scarcity of available resources.

Production Possibilities Curve (PPC)

A conceptual curve depicting the maximum output combinations of two goods an economy can produce given full resource efficiency and fixed technology.

Opportunity Cost (Alternative Cost)

The real sacrificed value of alternative goods or opportunities foregone when choosing to produce or consume a specific good, calculated as KE_Y = \frac{\text{Sacrificed Units of Good } X}{\text{Gained Units of Good } Y} = \frac{\reflectbox{\neg} \times \text{Units } X}{\text{Units } Y}.

Division of Labor

The specialization of individuals in distinct productive tasks, which enhances worker dexterity, prompts technical innovation, and vastly expands aggregate output.

Money

Anything that is universally accepted within a society as a general medium of exchange for goods, services, and debts.

Economic Circuit

The continuous flow model illustrating the reciprocal real flows of productive resources/goods and corresponding financial flows between households, firms, and the state.

Utility (Χρησιμότητα)

The subjective satisfaction derived by a consumer from consuming a specific quantity of a good or service over a given time period.

Rational Consumer

An economic actor who allocates disposable income across goods and services in a manner that maximizes total utility subject to prices and budget constraints.

Law of Demand

The fundamental economic law stating that, holding other factors constant (ceteris paribus), an increase in price leads to a decrease in quantity demanded, and vice versa.

Normal Goods

Goods for which consumer demand increases as real income rises and decreases as real income falls.

Inferior Goods

Goods for which consumer demand decreases as real income rises, as consumers substitute them for higher-quality alternatives.

Substitute Goods

Goods that fulfill similar needs such that an increase in the price of one raises the demand for the other.

Complementary Goods

Goods consumed jointly to satisfy a single need such that an increase in the price of one reduces the demand for the other.

Price Elasticity of Demand ($E_D$)

A measure of the sensitivity of quantity demanded to changes in a good's price, defined as E_D = \frac{\text{Percentage Change in } Q_D}{\text{Percentage Change in } P} = \frac{\reflectbox{\neg} \times Q}{\reflectbox{\neg} \times P} \times \frac{P_1}{Q_1}.

Income Elasticity of Demand ($E_Y$)

A measure of the responsiveness of quantity demanded to changes in consumer income, defined as E_Y = \frac{\text{Percentage Change in } Q_D}{\text{Percentage Change in } Y} = \frac{\reflectbox{\neg} \times Q}{\reflectbox{\neg} \times Y} \times \frac{Y_1}{Q_1}.

Short-Run Period

A production timeframe in which at least one input factor (typically capital or land) remains fixed while other inputs can be varied.

Long-Run Period

A production timeframe long enough for a firm to adjust the quantities of all input factors, rendering all inputs variable.

Production Function

The technological relationship defining the maximum output quantity $Q$ derivable from specified input combinations given state-of-the-art technology, represented as $Q = f(L, K)$.

Total Product ($TP$ or $Q$)

The total physical quantity of output generated when varying a variable input factor while holding all other inputs constant.

Average Product ($AP$)

The ratio of total output produced to the units of variable input employed, calculated as $AP = \frac{Q}{L}$.

Marginal Product ($MP$)

The additional output resulting from employing one extra unit of the variable input factor, calculated as MP = \frac{\reflectbox{\neg} \times Q}{\reflectbox{\neg} \times L}.

Law of Diminishing Returns

The economic principle asserting that in the short run, adding successive equal units of a variable input to fixed inputs initially yields increasing marginal product, but past a certain threshold, additional input units yield progressively smaller additions to total product.

Fixed Cost ($FC$)

Short-run production costs that do not vary with the volume of output produced.

Variable Cost ($VC$)

Production costs that change directly in response to variations in the volume of output produced.

Marginal Cost ($MC$)

The change in total (or variable) cost incurred by producing one additional unit of output, calculated as MC = \frac{\reflectbox{\neg} \times TC}{\reflectbox{\neg} \times Q} = \frac{\reflectbox{\neg} \times VC}{\reflectbox{\neg} \times Q}.

Economies of Scale

Long-run reductions in unit average costs achieved as output volume expands due to greater labor specialization and advanced technological utilization.

Law of Supply

The economic rule stating that, ceteris paribus, an increase in market price leads to an increase in quantity supplied, and a decrease in market price leads to a decrease in quantity supplied.

Price Elasticity of Supply ($E_S$)

A numerical ratio measuring the degree of responsiveness of quantity supplied to price changes, calculated as E_S = \frac{\reflectbox{\neg} \times Q}{\reflectbox{\neg} \times P} \times \frac{P_1}{Q_1}.

Equilibrium Price

The market-clearing price at which market quantity demanded equals market quantity supplied ($Q_D = Q_S$).

Price Ceiling (Ανώτατη Τιμή)

A maximum legal price established by the government below market equilibrium to protect consumers, causing market shortages and illegal black market transactions.

Price Floor (Κατώτατη Τιμή)

A minimum legal price established by the government above market equilibrium to support producer incomes, leading to persistent product surpluses.

Perfect Competition

An ideal market structure characterized by a vast number of sellers, homogeneous products, full market entry/exit freedom, and individual price-taking behavior ($P = MR = AR$).

Monopoly

A market structure where a single firm supplies a product with no close substitutes, giving the firm substantial control over price or output.

Oligopoly

A market structure dominated by a small number of large, mutually interdependent firms.

Monopolistic Competition

A market structure featuring numerous competing sellers offering differentiated products, blending competitive and monopolistic elements.

Gross Domestic Product (GDP / Α.Ε.Π.)

The total monetary value of all final goods and services produced within a country's geographical borders during a specific year.

Value Added (Προστιθέμενη Αξία)

The net increment to product value contributed at each stage of production, calculated as sales revenue minus the cost of intermediate inputs.

Nominal GDP

Gross domestic product evaluated at current market prices of the specified measurement period.

Real GDP

Gross domestic product evaluated at constant prices of a designated base year, filtering out the distorting effects of price inflation.

GDP Deflator

A price index measuring the change in price levels of all domestically produced final output relative to a base year.

Disposable Income

The total personal income available to households for final consumption spending and saving after deducting direct taxes and adding government transfer payments.

Inflation

The continuous upward movement in the economy's general price level over time.

Stagflation

An economic condition marked by simultaneous stagnation in economic growth (high unemployment) and elevated inflation rates.

Frictional Unemployment

Short-term unemployment arising while qualified workers transition between jobs or search for new positions matching their existing skills.

Structural Unemployment

Long-term unemployment caused by a structural mismatch between the skills or locations of unemployed workers and the technical requirements of available job vacancies.

Keynesian Unemployment (Demand-Deficient Unemployment)

Cyclical unemployment stemming from insufficient aggregate demand across the economy during economic downturns and recessions.

Comparative Advantage

The ability of a country to produce a good at a lower relative opportunity cost than another country.

Exchange Rate (Συναλλαγματική Ισοτιμία)

The domestic currency price required to purchase one unit of a foreign currency.

Balance of Payments

A systematic accounting statement recording all financial and real economic transactions conducted between domestic residents and the rest of the world over a specified year.