Fundamentals of Business Economics

Vocabulary flashcards for reviewing business economics lecture notes.

Economy

Household management, focusing on how scarce resources are managed.

Scarce

Limited resources, making it impossible to produce everything.

Needs

Essential items for human survival.

Wants

Things we desire; these are unlimited.

Economics

The study of how societies make choices under scarcity to satisfy unlimited wants.

Economic goods

Scarce and desirable goods.

Non-Economic Goods

Goods that are not scarce or not desirable.

Micro economics

The study of economic behavior of individual units such as individuals, firms, or markets.

Macro economics

Examination of the entire economy as a whole, including unemployment, inflation, and economic growth.

Market economy

An economic system where supply and demand determine decisions made by individual consumers and producers.

Command economy

An economic system where production decisions are controlled by the government.

Mixed economy

An economy that combines free markets with government intervention.

Invisible hand of the market

The unseen forces that move the free market economy through the interaction of supply and demand.

Demand curve

Shows how much consumers are willing and able to spend at different prices over a given period.

Expansion in demand

Quantity demanded rises due to a fall in price.

Contraction in demand

Quantity demanded falls due to a rise in price.

Change in quantity demanded

Movement along the demand curve caused by price change.

Change in demand

Shift in the demand curve due to changes in conditions of demand.

Complements

Goods that are used together.

Substitutes

Goods that can be used in place of another.

Elasticity

Measures the responsiveness of one variable to a change in another variable.

Price elasticity of demand (PED)

Explains the responsiveness of demand to changes in price.

Unit elasticity

Percentage change in demand equals percentage change in price (PED = 1).

Inelastic demand

Percentage change in demand is smaller than percentage change in price (PED between 0 and 1).

Elastic demand

Percentage change in demand is larger than percentage change in price (PED greater than 1).

Supply curve

Shows how much producers are willing and able to offer for sale at different prices over a given period.

Change in the quantity supplied

Movement up and down the supply curve due to changes in price.

Change in supply

Shifts in the supply curve due to changes in conditions of supply.

Price elasticity of supply (PES)

Percentage change in quantity supplied divided by percentage change in price

Equilibrium

The price mechanism sets a price where demand and supply meet

Market failure

When market forces result in sub-optimal allocation of resources, leading to under- or over-production.

Public goods

Goods that a free market would not provide at all.

Non-excludability

A person benefiting from a good without paying for it.

Non-rivalry

Consumption of a good by one person does not reduce the amount available to others.

Externalities

Social costs or benefits not automatically included in supply and demand curves.

Negative externalities

Social costs leading to negative impacts.

Positive externalities

Social benefits leading to positive impacts.

Merit goods

Goods with positive externalities.

Demerit goods

Goods with negative externalities and percieved negative effects on the consumers.

Transaction costs

Costs related to search, information, bargaining, decision making, policing and enforcement

Competition policy

Applying rules to ensure businesses compete fairly with each other.

Minimum price

Minimum legally allowed price set by the government.

Maximum price

Limit or cap on a price set by a government or organization.

Economies of scale

Reductions in unit average costs caused by increasing the scale of production in the long run.

Diseconomies of scale

Increases in unit average costs caused by increasing the scale of production in the long run.

Internal economies of scale

Advantages of expanding scale of operation that only benefit one firm.

External economies of scale

General advantages obtained by all firms in an industry.