Economics Review Flashcards

This set of flashcards focuses on key terms and concepts from economics, covering definitions and principles essential for understanding market dynamics and economic analysis.

Economics

The study of how people manage resources.

Scarcity

A situation where there are more wants and needs than resources available.

Rational Behavior

Comparing all available choices and behaving in the best way to achieve goals.

Incentives

Factors that can change people’s responses.

Efficiency

The optimal allocation of resources to ensure maximum satisfaction given available resources.

Microeconomics vs Macroeconomics

Microeconomics focuses on individual and firm resource management; macroeconomics looks at the economy as a whole.

Opportunity Cost

The value of the next best alternative that must be forgone.

Marginal Decision Making

Analyzing the additional benefits against the additional costs of a decision.

Sunk Cost

Costs that have already been incurred and cannot be recovered.

Positive Analysis

Analysis that seeks to explain how things are.

Normative Analysis

Analysis that prescribes how things should be.

Correlation

A statistical association between two events, which does not imply causation.

Economic Model

A simplified representation of a complex reality that is used to explain or predict economic phenomena.

Market Failure

A situation in which markets fail to allocate resources efficiently.

Equilibrium Price

The price at which the quantity supplied equals the quantity demanded.

Price Taker

A buyer or seller who cannot influence the market price.

Law of Demand

The principle that as price decreases, quantity demanded increases.

Demand Curve

A graphical representation showing the relationship between price and quantity demanded.

Substitutes

Goods that can be used in place of each other.

Complements

Goods that are consumed together.

Normal Goods

Goods for which demand increases as income increases.

Inferior Goods

Goods for which demand decreases as income increases.

Supply

The total amount of a good or service that producers are willing to sell at a given price.

Law of Supply

The principle that quantity supplied rises as price rises.

Non Price Determinants of Supply

Factors other than price that can affect supply.

Market Equilibrium

The point where supply and demand curves intersect.

Deadweight Loss

The loss of economic efficiency when equilibrium is not achieved.

Consumer Surplus

The difference between what consumers are willing to pay and what they actually pay.

Producer Surplus

The difference between what producers are willing to accept and what they actually receive.

Subsidy

A government payment that supports a business or market.

Tax Incidence

The distribution of the tax burden between buyers and sellers.

Elasticity

A measure of how much quantity demanded or supplied will change when prices change.

Price Elasticity of Demand

The responsiveness of quantity demanded to a change in price.

Total Revenue

The total income received from selling a good or service.

Circular Flow Model

A visual model of the economy that shows how dollars flow through markets.

Formula for deadweight loss

Change in price

Movement along the curve

Change in a non price determinant

causes a right or left shift of the curve

Non-price determinants of Demand

How does a market reach equilibrium

Markets left to their own devices. Prices will adjust themselves to reach equilibrium.

What can change equilibrium

Shifts of supply and demand
Government regulations.