Principles of Economics Practice Flashcards

A comprehensive set of vocabulary flashcards based on the Principles of Economics lecture notes, covering fundamental definitions, economic systems, market behaviors, and production theories of production.

Economics

The study of how society allocates its scarce resources.

Scarcity

The central problem of economics where infinite needs conflict with limited resources.

Oikonomia

A Greek term meaning household management, from which the word economics is derived.

Human Capital

A major indicator of economic growth referring to the skills and knowledge of the workforce.

John Maynard Keynes

An economist who claimed that practitioners in the field must be mathematicians, statesmen, and philosophers.

Traditional Economy

An economic system based on subsistence, tradition, and ancestral practices, often involving household-based divisions of labor.

Command Economy

An economic system where a central planner or government body determines what is produced, how much, and for whom.

Market Economy

An economic system where production and consumption decisions are decentralized and based on what is profitable and what the market wants.

Mixed Economy

An economic system that combines elements of tradition, central planning, and market forces; most modern countries, including the Philippines, fall into this category.

Ceteris Paribus

A Latin phrase meaning "all other things held equal," used to isolate the effect of a single variable.

Homo Economicus

A theoretical model of a human as a self-interested, utility-maximizing "man" who makes perfectly rational decisions.

Circular Flow Diagram

A macroeconomic model showing how households supply factors of production and firms provide goods and services.

Land

A factor of production including real estate, livestock, and natural resources like gold.

Labor

A factor of production consisting of human input, workers, and hours worked.

Capital

A factor of production referring to machineries, equipment, and the money required to acquire them.

Production Possibilities Frontier (PPF)

A model showing the maximum possible output combinations an economy can produce given its factors of production.

Opportunity Cost

The value of the best alternative forgone when making a choice; represented by the slope of the PPF.

Microeconomics

The study of how households and firms make decisions and how they interact in specific markets.

Macroeconomics

The study of economy-wide phenomena, including inflation, unemployment, and economic growth.

Positive Statements

Factual descriptions of the world that can be tested or confirmed.

Normative Statements

Subjective claims about how the world should be; these are often debatable.

Trade-offs

The principle that choosing one thing means giving up another, such as efficiency versus equality.

Rationality in Economics

The assumption that people do the best they can to achieve their objectives given their constraints, often by thinking at the margin.

Incentive

Something that induces a person to act, such as a reward or a punishment.

Market Failure

A situation where the market on its own fails to allocate resources efficiently, often caused by externalities or market power.

Externality

A situation where a transaction between two parties affects a third party who is not involved in the transaction.

Market Power

The ability of a single economic actor (or small group) to have a substantial influence on market prices, such as a monopoly.

Inflation

An increase in the overall level of prices in the economy, often caused by the government printing too much money.

Perfectly Competitive Market

A market with many buyers and sellers, homogenous products, perfect information, and free entry and exit.

Price Takers

Buyers and sellers in a perfectly competitive market who must accept the market price as given.

Law of Demand

The principle that, ceteris paribus, the quantity demanded ($Q_d$) of a good falls when the price ($P$) of the good rises.

Substitutes

Two goods for which an increase in the price of one leads to an increase in the demand for the other.

Complements

Two goods for which an increase in the price of one leads to a decrease in the demand for the other.

Normal Good

A good for which demand increases when income increases.

Inferior Good

A good for which demand decreases when income increases.

Law of Supply

The principle that, ceteris paribus, the quantity supplied ($Q_s$) of a good rises when the price ($P$) of the good rises.

Equilibrium

The point where quantity demanded ($Q_d$) equals quantity supplied ($Q_s$), resulting in a market-clearing price.

Elasticity

A measure of how sensitive one economic variable is to changes in another.

Price Elasticity of Demand

Calculated as the percentage change in quantity demanded divided by the percentage change in price ($\frac{\%\Delta Q_d}{\%\Delta P}$).

Consumer Surplus

The difference between a buyer's willingness to pay ($WTP$) and the actual price paid ($P$).

Diminishing Marginal Utility

The principle that as a person consumes more of a good, the satisfaction derived from each additional unit declines.

Marginal Product

The increase in output that arises from an additional unit of input, such as hiring one more worker.

Explicit Costs

Input costs that require an outlay of money by the firm.

Implicit Costs

Input costs that do not require an outlay of money, such as the opportunity cost of the owner's time.