Econ 2113: Vocabulary Flashcards for Chapters 1-4 (Mankiw & OpenStax)

Vocabulary flashcards covering key terms from Chapters 1-4.

Scarcity

The fundamental economic problem of unlimited wants vs. limited resources.

Opportunity cost

The value of the next-best alternative sacrificed when making a choice.

Marginal benefit

The extra benefit obtained from consuming or producing one additional unit.

Marginal cost

The extra cost of consuming or producing one additional unit.

Markets

Institutions in which buyers and sellers interact to exchange goods and services.

Market failure

A situation where markets do not allocate resources efficiently on their own.

Positive externalities

Benefits received by third parties not directly involved in a transaction.

Negative externalities

Costs imposed on third parties not reflected in market prices.

Inflation

A general rise in the overall price level of goods and services over time.

Gains from trade

Net benefits arising from specialization and voluntary exchange.

Equity

Fairness in the distribution of economic benefits.

Efficiency

Efficient use of resources to maximize total output or welfare.

Role of prices

Prices coordinate decisions of buyers and sellers and allocate resources.

Rational decision makers

Individuals who weigh costs and benefits to maximize utility.

Standard of living

The level of material well-being and consumption available to people.

Microeconomics

The study of individual decision-makers, markets, and firms.

Macroeconomics

The study of economy-wide aggregates and issues like inflation and unemployment.

Positive vs. normative statements

Positive: descriptions of how the world is; normative: judgments about how it should be.

Market economy vs. command economy

Market: decisions guided by prices and voluntary exchange; Command: decisions centralized by authorities.

Production Possibilities Frontier (PPF)

A curve showing the maximum feasible output combinations given resources and technology.

Factors of production

Land, labor, capital, and entrepreneurship used to produce goods/services.

Efficient vs. inefficient region (PPF)

Efficient: on the PPF; Inefficient: inside the PPF.

Possible vs. impossible regions (PPF)

Possible: on or inside the PPF; Impossible: outside given resources.

Increasing marginal cost

Marginal cost rises as production of additional units increases.

Shape of the PPF

Typically concave due to increasing opportunity costs.

Opportunity cost shown on the PPF

The slope of the PPF represents the opportunity cost of one good in terms of the other.

Absolute advantage

The ability to produce more of a good with the same resources.

Comparative advantage

The ability to produce a good at a lower opportunity cost than another producer.

Calculating opportunity cost (in trade)

Determining the value of the next-best alternative foregone in production.

Specialization

Focusing on activities where one has a comparative advantage.

Gains from trade (in specialization)

Mutual benefits from producing according to comparative advantage and trading.

Imports

Goods produced abroad and bought domestically.

Exports

Goods produced domestically and sold abroad.

Market (general)

Any arrangement that brings buyers and sellers together to exchange goods.

Competitive market

A market with many buyers and sellers; price-taking participants.

Demand curve

A graph showing the relationship between price and quantity demanded.

Law of Demand

As price falls, quantity demanded typically rises (and vice versa).

Quantity demanded

The amount of a good consumers are willing to buy at a given price.

Change in demand vs. change in quantity demanded

Change in demand: shift of the entire curve; change in quantity demanded: movement along the curve.

Determinants of demand (shifters)

Non-price factors that shift the demand curve (e.g., income, prices of related goods, expectations, number of buyers, tastes).

Market demand

The total quantity demanded by all buyers in a market at each price.

Market supply

The total quantity supplied by all sellers in a market at each price.

Normal goods

Goods whose demand rises as income rises.

Inferior goods

Goods whose demand falls as income rises.

Substitutes

Goods that can replace each other (e.g., Coke and Pepsi).

Complements

Goods often consumed together (e.g., bread and butter).

Supply curve

A graph showing the relationship between price and quantity supplied.

Shifts in the supply curve

Non-price determinants that cause the supply curve to shift (e.g., input prices, technology).

Law of Supply

As price rises, quantity supplied generally increases.

Quantity supplied

The amount producers are willing to offer at a given price.

Change in supply vs change in quantity supplied

Change in supply: shift of the curve; change in quantity supplied: movement along the curve.

Surplus

When quantity supplied exceeds quantity demanded at a given price.

Shortage

When quantity demanded exceeds quantity supplied at a given price.

Equilibrium price

The price at which quantity supplied equals quantity demanded.

Equilibrium quantity

The quantity at which quantity supplied equals quantity demanded.