Economics Fundamentals: Scarcity, Circular Flow, and Demand

Vocabulary flashcards covering core concepts of introductory economics, including resource allocation, factors of production, the circular flow model, input/output markets, and demand theory.

Scarcity

A state of lack or being limited.

Resource

The most basic element that people use to make goods and services.

Choice

The decision made by individuals, firms, or governments about which needs or wants to satisfy, given scarce resources.

Trade-off

The situation in which choosing more of one thing leads to getting less of another due to limited resources.

Economics

The study of how individuals, business firms, governments, and societies as a whole make choices under conditions of scarcity; the study or the science of scarcity.

Land

Everything on earth that is in its natural state, or earth’s natural resources.

Labor

All the people, employees, managers, and staff who work in the economy, including their time and skills.

Capital

Includes money and tangible assets needed to start and operate a business; on a national level, includes infrastructure, roads, schools, and military ordnance.

Entrepreneurship

The skills, experiences, and other intangible contributions of people to run a business.

Circular Flow Matrix

A diagram used by economists to explain transactions between two types of decision-makers: businesses/firms and individuals/households.

Business

The basic producing unit in an economy.

Individual

The basic consuming unit in an economy.

Market

Any venue, means, or arrangement through which buyers and sellers interact, get information, and engage in trade/exchange.

Output/Product Markets

Markets in which businesses supply goods and services and individuals demand goods and services.

Input/Factor Markets

Markets in which individuals supply resources and businesses demand resources.

Financial Flow

The money flow representing the monetary payment by the business to the individual for its purchase of inputs, and by the individual to the business for its purchase of goods and services.

Physical Flow

The goods and services flow representing the flow of goods and services from the business to the individual, and the flow of inputs from the individual to the business.

Private Sector

The part of the economy consisting of households and businesses.

Public Sector

The part of the economy run by the government.

Government Spending

Payments made by the government for goods, services, and resources bought from the Product Market and Resource Market.

Public Goods

Goods provided by the government to households and businesses, such as roads, schools, fire stations, and national defense.

Transfer Payments

Government payments that provide subsidies to businesses and welfare to households.

Land Market

The input market in which individuals supply land or other real estate property to businesses that demand land in exchange for rent.

Labor Market

The input market in which individuals supply work to businesses that demand labor in exchange for wages or salaries.

Capital Market

The input market in which individuals supply their savings to businesses that demand capital or funds in exchange for interest.

Entrepreneurship Market

The input market in which individuals supply their creative ability to businesses that demand entrepreneurship in exchange for profit.

Demand

The relationship between the price of a good or service and the quantity all consumers in a market would choose to buy during a given time period.

Demand Schedule

The quantities of a good or service consumers are willing to buy per time period at different prices.

Quantity Demanded

The quantity of a good or service consumers would choose to buy at a particular price.

Demand Curve

A graphical representation of the demand schedule that contains the same prices and quantities presented in the demand schedule.

Law of Demand

The negative relationship between price and quantity demanded.

Ceteris Paribus

The assumption that other things are equal or that other things remain the same.

Utility

The level of satisfaction a consumer receives from buying or using a good or service.

Marginal Utility

The added satisfaction a consumer gets from having 1 more unit of a good or service.

Movement Along the Demand Curve

A change from one point to another on the same demand curve because of a change in price.

Shift of the Demand Curve

A change in the position of the entire demand curve because of a change in the entire demand schedule.

Normal Good

A good for which demand increases when income increases.

Inferior Good

A good for which demand decreases when income increases.

Substitutes

A pair of goods for which one good can be used in place of the other.

Complements

A pair of goods often consumed together.

Veblen Goods

Luxury goods for which the quantity demanded increases as price increases, resulting in an upward-sloping demand curve.

Veblen Effect

The behavior that occurs when consumers perceive higher-priced goods to be worth more, simply because they cost more; identified by Norwegian-American economist Thorstein Veblen.

Conspicuous Consumption

The spending of money on and the acquiring of luxury goods and services to publicly display the buyer’s accumulated wealth and power.

Giffen Goods

Low-income, non-luxury, inferior goods for which the quantity demanded increases as price increases, resulting in an upward-sloping demand curve; named after Scottish economist, statistician, & journalist Sir Robert Giffen.