ECON 202 - Macroeconomic Principles: Micro-Math Review

Flashcards covering key macroeconomic and microeconomic principles, definitions, and concepts from the lecture notes on Chapters 2-4: Micro-Math Review.

Economics

The study of the choices made by people when there is scarcity.

Scarcity

A situation in which resources are limited in quantity and can be used in different ways, leading to the problem of choice.

Factors of Production

The resources used for production: natural resources, labor, physical capital, human capital, and entrepreneurship.

Natural Resources

Things created by acts of nature such as land, water, minerals, oil and gas deposits, renewable and nonrenewable resources.

Labor

The human effort, physical and mental, used by workers in the production of goods and services.

Physical Capital

All the machines, buildings, equipment, roads, and other objects made by human beings to produce goods and services.

Human Capital

The knowledge and skills acquired by a worker through education and experience.

Entrepreneurship

The effort to coordinate the production and sale of goods and services, involving risk-taking and commitment of time and money without guarantee of profit.

Production Possibility Frontier (PPF)

A curve that describes the combinations of products an economy can produce given resources and technological know-how, assuming productive resources are fully employed and efficiently used.

Increasing Opportunity Cost

The principle that as production of one good increases, the sacrifice of the other good progressively increases, causing the PPF curve to be bowed out because resources are not perfectly adaptable.

Expansion of PPF

An outward shift of the production possibilities curve, caused by an increase in the quantity of resources or technological innovation.

Opportunity Cost Principle

The principle that the opportunity cost of something is what you sacrifice to get it, determined by the value of the best alternative forgone.

Marginal Principle

A decision-making rule stating that an activity should be increased if the marginal benefit (extra benefit from a small increase) is larger than the marginal cost (extra cost from a small increase).

Marginal Benefit (MB)

The extra benefit resulting from a small (one unit) increase in an activity.

Marginal Cost (MC)

The extra cost resulting from a small (one unit) increase in an activity.

Principle of Diminishing Returns

The principle that as the number of workers (or other inputs) increases while holding other inputs constant, the output per additional worker decreases.

Principle of Voluntary Exchange

The principle that a voluntary exchange between two people makes both people better off.

Percentage Change

Calculated as (new value - old value) / old value * 100.

Nominal Value

The face value of an amount of money, not adjusted for inflation.

Real Value

The value of an amount of money in terms of what it can buy, adjusted for inflation.

Real-Nominal Principle

The principle that people care about the real value of money or income, not just its nominal value.

Market

An arrangement that allows buyers and sellers to exchange things, determining the price of goods and services through self-interest.

The Invisible Hand

Adam Smith's concept that individuals pursuing their own self-interest in a free market, without government intervention, can promote the well-being of society more effectively than if they explicitly intended to.

Comparative Advantage

The ability of one person or nation to produce a good at a lower opportunity cost than another person or nation.

Absolute Advantage

The ability of one person or nation to produce a product at a lower resource cost (using fewer resources) than another person or nation.

Positive Economics

The branch of economics that answers the questions: 'What is' or 'What will be?' focusing on factual statements and predictions.

Normative Economics

The branch of economics that answers the question: 'What ought to be?' involving value judgments and policy recommendations.

Specialization

The act of performing a single production task, which Adam Smith noted increases productivity through repetition, continuity, and innovation.

Market Failure

A situation when a market doesn't generate the most efficient outcome, often due to externalities, public goods, imperfect information, or imperfect competition.

Externalities

A cost or benefit experienced by people who are external to the decision about how much of a good to produce or consume.

Public Goods

Goods that are non-rival (one person's consumption does not reduce another's) and non-excludable (people cannot be prevented from consuming them), such as national defense or clean air.

Demand Shifters

Non-price factors that affect consumer demand, including consumer income, prices of substitute/complementary goods, consumer tastes, advertising, and consumer expectations about future prices.

Income Effect

The change in consumption resulting from a change in real income caused by a change in the price of a good.

Substitution Effect

The change in consumption resulting from a change in the relative price of a good, causing consumers to substitute cheaper alternatives.

Supply Shifters

Non-price factors that influence sellers' decisions, including cost of inputs, state of production technology, number of producers, producer expectations about future prices, and taxes or subsidies.

Market Equilibrium

A state where the quantity of a product supplied equals the quantity demanded, resulting in no pressure to change the price.

Excess Demand

A situation where consumers are willing to buy more than producers are willing to sell at a given price, leading to upward pressure on prices.

Excess Supply

A situation where producers are willing to sell more than consumers are willing to buy at a given price, leading to downward pressure on prices.

Change in Quantity Demanded

A movement along a single demand curve caused by a change in the price of the good itself.

Change in Demand

A shift of the entire demand curve caused by changes in a variable other than the price of the good.

Normal Good

A good for which an increase in consumer income leads to an increase in demand.

Inferior Good

A good for which an increase in consumer income leads to a decrease in demand, often because consumers switch to more expensive alternatives.

Substitutes

Two goods for which an increase in the price of one good increases the demand for the other good.

Complements

Two goods for which a decrease in the price of one good increases the demand for the other good (or an increase in price decreases demand).

Short-run

A time period over which one or more production variables (like wages or factors of production) are fixed.

Long-run

A time period over which most or all production variables are flexible, allowing firms to adjust their production facilities and inputs entirely.