CHAP 1-Introduction to Economics: Principles, Tools, and Graphical Analysis

A set of flashcards covering foundational economic principles, the role of theory and models, and mathematical graph interpretation based on Chapter 1 and the Appendix of the Baumol, Blinder, and Solow textbook.

Opportunity Cost

The value of the next best alternative that must be given up when making a decision.

Price Ceilings and Price Floors

Regulatory attempts to repeal the laws of supply and demand.

Law of Comparative Advantage

An economic principle explaining trade benefits even when one party is more efficient in all areas.

Voluntary Exchange

A mutually beneficial transaction where parties trade willingly.

Marginal Analysis

The process of thinking at the margin, such as comparing the marginal cost versus the average cost of an airline passenger.

Externalities

Social costs that affect parties external to the economic transactions that cause them.

Efficiency versus Equality

The trade-off described as the size of the economic pie versus how a piece of the pie is distributed.

Fiscal Policy

The control of taxes and government spending to limit economic fluctuations.

Monetary Policy

The control of money and interest rates to limit economic fluctuations.

Short-run Trade-off

The inverse relationship between unemployment and inflation.

Productivity Growth

The factor described as being almost everything for economic progress in the long run.

Abstraction

A necessary simplification used to understand the functioning of anything as complex as the economy.

Economic Theory

A deliberate simplification of a relationship used to explain how it works.

Economic Model

A simplified version of some aspect of the economy that can be expressed with equations, graphs, and words.

Two-variable Diagram

A graph showing what happens to one variable when another variable changes, typically plotted on x and y axes.

Origin

The point on a graph where the value of both variables is $0$.

Slope

The measurement of a line defined as vertical change divided by horizontal change, or $\frac{\text{rise}}{\text{run}}$.

Tangent Line

A line used to measure the slope at a specific point on a curved graph.

Y-intercept

The point at which a line touches the vertical axis.

Ray

A line with a Y-intercept equal to $0$, along which the slope remains the same.

45-degree Line

A specific ray through the origin where $Y = X$ at every point.

Contour Map

A method of squeezing three dimensions (such as latitude, longitude, and altitude) into two dimensions.

Production Indifference Curve

A curve on an economic contour map that shows how to combine two inputs to produce a given output.