Chapter 3 Lecture Notes

Flashcards based on key concepts from economics lecture notes, covering production, demand, supply, and market equilibrium.

Production Possibility Frontier (PPF)

A curve showing the maximum feasible amounts of two goods that can be produced with available resources.

Marginal Cost (MC)

The opportunity cost of producing one additional unit of a good or service.

Marginal Benefit (MB)

The additional benefit received from consuming one more unit of a good or service.

Comparative Advantage

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

Economic Growth

An increase in the production of goods and services in an economy over a period of time.

Law of Demand

As the price of a good rises, the quantity demanded decreases, and as the price falls, the quantity demanded increases, all else being equal.

Substitution Effect

When the price of a good rises, consumers switch to a cheaper alternative, decreasing the quantity demanded.

Income Effect

When a price change affects the consumer's real income, altering the quantity demanded.

Market Equilibrium

A situation where the quantity demanded equals the quantity supplied at a certain price.

Supply Curve

A graphical representation showing the relationship between the price of a good and the quantity supplied.

Shift in Demand Curve

Occurs when a non-price factor influences consumers’ willingness to buy, resulting in a new demand quantity at every price.

Giffen Good

A good for which demand increases as the price increases, typically because it is an inferior good.

Veblen Good

A luxury good for which demand increases as the price increases, due to its exclusivity.

Factors of Production

The inputs used to produce goods or services, including labor, land, capital, and entrepreneurship.

Competitive Market

A market structure where many firms compete against one another, and no single firm can influence the market price.

Expected Future Prices

Anticipations of future price changes that can affect current demand and supply.

Normal Good

A good for which demand increases as consumer income increases.

Inferior Good

A good for which demand decreases as consumer income increases.

Opportunity Cost

The cost of foregoing the next best alternative when making a decision.

Price Adjustments

The process by which prices change in response to changes in supply and demand.