Economics Test 1

Scarcity

The fundamental economic problem where resources are limited but human wants are unlimited.

Opportunity Cost

The next best alternative that is given up when making a choice.

Market

Any place or system where buyers and sellers interact to exchange goods and services, which can be physical or digital.

Consumer Sovereignty

The concept that consumers influence what is produced through their buying decisions by "voting" with their money.

Law of Demand

The principle that, ceteris paribus, when the price of a good increases, quantity demanded decreases.

Law of Supply

The principle that, ceteris paribus, when the price of a good increases, quantity supplied increases.

Ceteris Paribus

An economic term meaning "all other factors remaining unchanged".

Market Equilibrium

The point where the demand and supply curves intersect, and quantity demanded equals quantity supplied.

Shortage

A situation where quantity demanded is greater than quantity supplied, occurring when the price is below equilibrium.

Surplus

A situation where quantity supplied is greater than quantity demanded, occurring when the price is above equilibrium.

Movement

A change along a demand or supply curve caused specifically by a change in the price of the good itself.

Shift

A change where the entire demand or supply curve moves left or right due to a non-price factor.

PERINT (Demand Factors Mnemonic)

Price of related goods, Expectations, Related goods (substitutes/complements), Income, Number of consumers, and Tastes.

PCETNG (Supply Factors Mnemonic)

Price of the good itself, Costs of production, Expectations, Technology, Number of producers, and Government policy.

Gross Domestic Product (GDP)

The total value of final goods and services produced within a country over a specific period.

Real GDP

GDP adjusted to remove the effect of price changes; it is the primary measure of economic growth.

Expansion

A phase of the business cycle characterized by increasing production, rising real GDP, and falling unemployment.

Contraction

A phase of the business cycle characterized by falling production, slowing GDP growth, and rising unemployment.

Inflation

A sustained increase in the general level of prices of goods and services over time.

Consumer Price Index (CPI)

The measure used to calculate the inflation rate by tracking price changes for a "basket" of goods.

Purchasing Power

The amount of goods and services that a specific amount of money can buy, which falls when prices rise faster than wages.

Cyclical Unemployment

Unemployment caused directly by a downturn in the business cycle or a recession.

Structural Unemployment

Unemployment occurring when a worker's skills no longer match the available jobs, often due to technological change.

Frictional Unemployment

Temporary unemployment occurring when people are changing jobs or entering the workforce for the first time.

Underemployment

A situation where workers have a job but want to work more hours than they are currently provided.

Full Employment

A situation where everyone willing and able to work has a job, though frictional and structural unemployment still exist.

Real GDP per Capita

Real GDP divided by the total population, providing an estimate of average production per person.

Material Living Standards

Wellbeing measured by physical access to goods and services, such as income and housing.

Non-Material Living Standards

Aspects of quality of life not measured by money, such as environmental quality, personal safety, and leisure time.