Economics Fundamentals: Scarcity, Trade, Supply, and Demand

Vocabulary flashcards covering core microeconomic and macroeconomic concepts including scarcity, factors of production, PPC, comparative advantage, demand, supply, and market equilibrium.

Economics

The social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants.

Scarcity

The economic condition of having unlimited wants but limited resources.

Microeconomics

The study of small economic units such as individuals, firms, and specific markets (e.g., supply and demand in specific industries, production costs, labor markets).

Macroeconomics

The study of the large economy as a whole or economic aggregates, covering economic growth, government spending, inflation, unemployment, and international trade.

Theoretical Economics

The process in which economists use the scientific method to make generalizations and abstractions to develop theories.

Policy Economics

The application of economic theories to fix problems or meet economic goals.

Positive Statements

Statements that are based on facts and avoid value judgments.

Normative Statements

Statements that include value judgments.

Marginal Analysis

The process of making economic decisions based on increments.

Utility

An economic term meaning satisfaction.

Marginal

An economic term meaning additional.

Allocate

An economic term meaning to distribute.

Trade-off

All the alternatives that are given up when a choice is made.

Opportunity Cost

The most desirable alternative given up when making a choice.

Price

The amount that a buyer or consumer pays for a good.

Cost

The amount that a seller pays to produce a good.

Investment

The money spent by businesses to improve their production.

Consumer Goods

Goods created for direct consumption (e.g., pizza).

Capital Goods

Goods created for indirect consumption (e.g., an oven or blender) used to produce other goods.

Land

All natural resources that are used to produce goods and services (e.g., water, sun, plants, animals).

Labor

Any effort a person devotes to a task for which that person is paid.

Physical Capital

Any human-made resource that is used to create other goods and services (e.g., tools, tractors, factories).

Human Capital

Any skills or knowledge gained by a worker through education and experience.

Entrepreneurship

Ambitious leaders who combine the other factors of production, take initiative, innovate, and act as risk bearers to obtain profit.

Productivity

A measure of efficiency showing the number of outputs produced per unit of input.

Production Possibilities Curve (PPC)

A model that graphically shows alternative combinations of goods an economy can produce using its scarce resources, demonstrating trade-offs, opportunity costs, and efficiency.

Constant Opportunity Cost

A condition where resources are easily adaptable for producing either good, resulting in a straight-line Production Possibilities Curve.

Law of Increasing Opportunity Cost

The economic principle stating that as you produce more of any good, the opportunity cost (forgone production of another good) will increase.

Absolute Advantage

The condition of being the producer that can produce the most output or that requires the least amount of inputs (resources).

Comparative Advantage

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

Terms of Trade

The agreed-upon exchange conditions that benefit both trading countries.

Demand

The different quantities of goods that consumers are willing and able to buy at different prices.

Demand Schedule and Curve

A table and downward-sloping graphical representation showing the inverse relationship between price and quantity demanded (e.g., as the price of milk falls from $5$ to $1$, quantity demanded increases from $10$ to $80$).

Law of Demand

The economic law stating that there is an inverse relationship between price and quantity demanded.

Substitution Effect

The principle that when the price of a product increases, consumers buy less of that product and more of a substitute product (and vice versa).

Income Effect

The principle that when the price of a product goes down, consumers' purchasing power increases, allowing them to purchase more.

Law of Diminishing Marginal Utility

The principle that the additional satisfaction a consumer receives from consuming additional units of a good will eventually start to decrease.

Substitutes

Goods that are used in place of one another.

Complements

Two goods that are bought and used together.

Normal Goods

Goods whose demand increases when consumer income increases and decreases when consumer income falls.

Inferior Goods

Goods whose demand falls when consumer income increases and rises when consumer income falls.

Supply

The different quantities of a good or service that sellers are willing and able to sell (produce) at different prices.

Law of Supply

The economic principle stating that there is a direct relationship between price and quantity supplied.

Subsidies

A government payment made to a business or market that causes the supply of a good to increase.

Market Equilibrium

The intersection of the supply and demand curves, where quantity demanded equals quantity supplied ($Q_d = Q_s = 30$ at an equilibrium price of $P = \$3$).

Surplus

A market condition where quantity demanded is less than quantity supplied, prompting producers to lower prices.

Shortage

A market condition where quantity demanded is greater than quantity supplied, prompting producers to raise prices.