Unit 1: Basic Economic Concepts

Comprehensive vocabulary flashcards covering the fundamental concepts of scarcity, production possibilities, comparative advantage, and market equilibrium based on the Unit 1 lecture notes.

Economics

The study that focuses on scarcity and how it requires individuals, businesses, and governments to make choices.

Production Possibilities Curve (PPC)

A graph that shows the different combinations of two goods that can be produced using all of a country’s resources/factors of production to the fullest.

Scarcity

The idea that individuals and society have unlimited wants/desires but limited resources.

Factors of Production

The four resources required for production: land, labor, capital, and entrepreneurship.

Physical Capital

Tools, machines, or manufacturing equipment used to produce goods and services.

Human Capital

The skills, knowledge, and experience that workers need to produce things.

Constant Opportunity Cost

Occurs when products use similar resources, resulting in a straight line PPC.

Increasing Opportunity Cost

Occurs when products use different resources, resulting in a bowed out PPC.

Capital Goods

A resource used to make more goods in the future; higher production of these leads to more economic growth.

Absolute Advantage

When a country can produce more of a good (output) or produce a good using fewer resources like hours (input).

Comparative Advantage

When a country can produce specific goods at a lower opportunity cost than other countries.

Terms of Trade

The agreed-upon exchange rate (e.g., $1$ plane for $3$ cars) that can benefit both countries involved in trade.

Law of Demand

States there is an inverse (or negative) relationship between price and quantity demanded.

Shifters of Demand

Tastes and preferences, number of consumers, price of related goods (substitutes and complements), income, and future expectations.

Law of Supply

States there is a direct (or positive) relationship between price and quantity supplied.

Shifters of Supply

Prices of resources, number of producers, technology, government action (taxes, subsidies, regulations), and expectations of future profit.

Surplus

A market condition where the quantity supplied (Qs) is greater than the quantity demanded (Qd) because the price is above equilibrium.

Shortage

A market condition where the quantity demanded (Qd) is greater than the quantity supplied (Qs) because the price is below equilibrium.

Double Shift Rule

When two curves shift at the same time, either the equilibrium price or quantity will be indeterminate.

Change in Quantity Demanded

Movement along the existing demand curve caused specifically by a change in the own-price of the product.

Change in Demand

When the entire demand curve shifts due to a change in one of the five shifters.