ECON 1B03 - Units 1 to 4 Vocabulary Flashcards

Vocabulary practice flashcards covering fundamental concepts, definitions, functions, advantages, and policy interventions from ECON 1B03 Units 1 through 4.

Economics

The study of human behaviour and choice, focused on how people make decisions when facing limited resources.

Marginal Benefit (MB)

The additional benefit received from undertaking one more unit of an action.

Marginal Cost (MC)

The additional cost incurred from undertaking one more unit of an action.

Net Benefit (NB)

The overall benefit minus cost of a choice, calculated as $\text{NB} = \text{MB} - \text{MC}$.

Scarcity

The basic economic condition resulting from the combination of limited resources and unlimited human wants.

Market Economy

An economic system where the private sector answers the three economic questions without state or government intervention.

Centrally Planned Economy

An economic system in which the government makes major economic decisions, including directing resources and setting production targets.

Mixed Economy

An economic system combining private sector market activity with government regulation and public provision of goods and services.

Productive Efficiency

A state achieved when a good or service is produced at the lowest possible cost.

Allocative Efficiency

A state of resource allocation where resources are used to produce the specific mix of goods and services that consumers desire.

Equity

The fair and equitable distribution of economic benefits and resources across society.

Positive Analysis

Economic analysis focused on objective facts, logic, and testable statements regarding what 'is' or 'could be'.

Normative Analysis

Economic analysis involving value judgments, opinions, and statements regarding what 'should be' or is desirable.

Microeconomics

The study of individual economic agents, such as individual consumers, workers, firms, and specific markets.

Macroeconomics

The study of the economy as a whole, covering topics such as economic growth, inflation, unemployment, and aggregate consumption.

Linear Function

A mathematical relationship that forms a straight line when graphed, expressed by the general equation $y = mx + b$.

Slope

A measure of how much $y$ changes relative to a change in $x$, calculated using the formula $m = \frac{y_2 - y_1}{x_2 - x_1}$.

Y-Intercept

The point where a graphed line intersects the vertical axis, representing the value of $y$ when $x = 0$.

Production Possibilities Frontier (PPF)

A representation of the possible combinations of two goods or activities that can be produced using available finite resources.

Opportunity Cost

The value or benefit of the next-best alternative given up when making a decision.

Absolute Advantage

The ability of a producer to produce a greater total quantity of output than another producer using given resources.

Comparative Advantage

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

Specialization

The concentration of economic effort on producing the specific activity or good in which a producer holds a comparative advantage.

Output Markets

Markets in which firms sell goods and services to consumers, businesses, or government bodies.

Factor Markets

Markets involving resources required for production, including the labour market and capital market.

Circular Flow of Income

The continuous movement of money, goods, services, and productive factors among households, firms, government, and non-profits.

Quantity Demanded

The total amount of a good or service consumers are willing and able to purchase at a given price.

Law of Demand

The rule stating that, holding other factors constant, price and quantity demanded have an inverse relationship ($P \uparrow \rightarrow Q_d \downarrow$).

Substitution Effect

The change in consumption resulting from a price change that makes a product relatively more or less expensive than substitute goods.

Income Effect

The change in consumption resulting from a price change that alters the purchasing power of a consumer's fixed income.

Quantity Supplied

The total amount of a good or service producers are willing and able to offer for sale at a given price.

Law of Supply

The rule stating that, holding all other factors constant, price and quantity supplied move in the same direction ($P \uparrow \rightarrow Q_s \uparrow$).

Market Equilibrium

The point of intersection between supply and demand curves where quantity supplied equals quantity demanded ($Q_s = Q_d$).

Shortage

A situation of excess demand occurring when market price is below equilibrium, causing $Q_d > Q_s$.

Surplus

A situation of excess supply occurring when market price is above equilibrium, causing $Q_s > Q_d$.

Consumer Surplus (CS)

The net benefit gained by consumers, calculated as maximum willingness to pay minus actual price paid ($\text{CS} = \text{Willingness to Pay} - \text{Price Paid}$).

Consumer Expenditure

The total dollar amount spent by consumers on a good or service, calculated as $P \times Q$.

Producer Surplus (PS)

The net benefit gained by producers, calculated as price received minus marginal cost ($\text{PS} = \text{Price Received} - \text{Marginal Cost}$).

Total Market Surplus

The total economic gains from a market, calculated as the sum of consumer surplus and producer surplus ($\text{Total Surplus} = \text{CS} + \text{PS}$).

Market Efficiency

An economic state where total market surplus is maximized at the free-market equilibrium price and quantity ($P^*, Q^*$).

Government Market Interventions Summary

A summary table showing the primary market effects on price ($P$) and quantity ($Q$) caused by price floors, price ceilings, and quotas.

Price Floor

A minimum allowable price set by government; binding when set above equilibrium price ($P^*$), causing $P \uparrow$ and $Q \downarrow$.

Price Ceiling

A maximum allowable price set by government; binding when set below equilibrium price ($P^*$), causing $P \downarrow$, $Q \downarrow$, and shortage.

Quota

A maximum allowable quantity set by government; binding when set below equilibrium quantity ($Q^*$), causing $Q \downarrow$ and $P \uparrow$.

Deadweight Loss (DWL)

The lost total market surplus and efficiency that occurs when market distortions prevent mutually beneficial transactions.

Unit Tax

A sales tax structured as a fixed dollar amount per unit sold, regardless of the product's selling price.

Ad Valorem Tax

A sales tax structured as a fixed percentage of the price of a good or service.

Tax Incidence

The division of the burden of a tax between consumers (consumer incidence) and producers (producer incidence).

Subsidy

A government payment to businesses that lowers production costs, shifting supply outward and decreasing consumer price.