ECON1020 Detailed Exam Study Notes (Weeks 1–12)

Comprehensive vocabulary flashcards covering the core concepts of ECON1020, including growth, supply and demand, elasticity, market failures, and game theory.

GDP (Gross Domestic Product)

Total value of income and output produced in an economy during a period.

GDP per capita

A measure of average income calculated as $\frac{\text{GDP}}{\text{Population}}$.

Hockey Stick Growth

An exam diagram representing flat growth for centuries followed by rapid growth in GDP per capita after 1700.

Technology

Processes that convert inputs into outputs.

Capitalism

An economic system characterized by Private Property, Markets, and Firms ($\text{P + M + F}$).

Specialisation

Focusing on a narrow range of tasks to increase productivity through learning-by-doing and economies of scale.

Comparative Advantage

The ability to produce a good at a lower opportunity cost compared to others.

Economic Surplus

The total benefit gained from a choice minus the total costs, expressed as $\text{Benefits} - \text{Costs}$.

Opportunity Cost

The next best alternative that must be given up when a choice is made; often identified by asking "OR WHAT?"

Production Possibilities Frontier (PPF)

A graph showing combinations of output; points on the curve are Efficient, inside are Inefficient, and outside are Unattainable.

Sunk Cost

A cost that has already been incurred and cannot be recovered; it should be ignored when making future decisions.

Marginal Principle

The decision-making rule to continue an activity as long as $\text{Marginal Benefit (MB)} \ge \text{Marginal Cost (MC)}$ and stop when they are equal.

Interdependence Principle

The idea that economic decisions depend on other choices made by the same person, choices of others, other markets, and future expectations.

Law of Demand

The principle that when price falls, quantity demanded rises, and when price rises, quantity demanded falls.

Diminishing Marginal Benefit

The concept that as more units are consumed, the extra benefit derived from each additional unit decreases.

Rational Rule for Buyers

A rule stating that a consumer should buy another unit if $\text{Marginal Benefit} \ge \text{Price}$.

Substitutes

Two goods used instead of each other, where an increase in the price of one leads to an increase in demand for the other.

Complements

Two goods used together, where an increase in the price of one leads to a decrease in demand for the other.

Law of Supply

The principle that when price rises, quantity supplied rises, and when price falls, quantity supplied falls.

Price Taker

A firm in a perfectly competitive market that accepts the market price and cannot set its own price.

Rational Rule for Sellers

A rule stating that a seller should sell one more unit if $\text{Price} \ge \text{Marginal Cost}$.

Equilibrium

The state where quantity demanded equals quantity supplied ($Qd = Qs$) and there is no pressure for price to change.

Shortage

A market condition occurring when $Qd > Qs$, typically when the price is set below equilibrium.

Surplus

A market condition occurring when $Qs > Qd$, typically when the price is set above equilibrium.

Price Elasticity of Demand (PED)

A measure of responsiveness calculated as $\frac{\% \Delta \text{Quantity Demanded}}{\% \Delta \text{Price}}$.

Elastic Demand

Demand is elastic if the absolute value of PED is $> 1$, meaning quantity demanded changes by a larger percentage than price.

Inelastic Demand

Demand is inelastic if the absolute value of PED is $< 1$, meaning quantity demanded changes by a smaller percentage than price.

Statutory Burden

The entity the government legally assigns to send a tax payment.

Economic Burden

The person or entity who is actually worse off after a tax due to changed after-tax prices.

Tax Incidence

The division of the economic burden between buyers and sellers, which depends on the relative elasticity of the market sides.

Price Ceiling

A maximum legal price that is binding only if set below the equilibrium price, resulting in a shortage.

Price Floor

A minimum legal price that is binding only if set above the equilibrium price, resulting in a surplus.

Positive Analysis

An objective study of what is happening or will happen that can be tested with evidence.

Normative Analysis

A study of what should happen, involving value judgements and fairness.

Consumer Surplus

The buyer's gain from paying less than their willingness to pay, calculated as $\text{Marginal Benefit} - \text{Price}$.

Producer Surplus

The seller's gain from receiving more than their marginal cost, calculated as $\text{Price} - \text{Marginal Cost}$.

Deadweight Loss (DWL)

The lost economic surplus resulting from market failure or inefficient quantity traded.

Externality

A side effect on bystanders whose interests are not taken into account, leading to market failure.

Socially Optimal Quantity

The level of activity where $\text{Marginal Social Benefit (MSB)} = \text{Marginal Social Cost (MSC)}$.

Public Goods

Goods that are non-rival and non-excludable, which often leads to the Free Rider Problem.

Common Resources

Goods that are rival but non-excludable, leading to the Tragedy of the Commons.

Gini Coefficient

A measure of inequality ranging from $0$ (perfect equality) to $1$ (perfect inequality).

Market Power

The ability of a firm to influence the market price of its products.

Economic Profit

Total Revenue minus both Explicit Costs and Opportunity Costs.

Price Discrimination

Occurs when firms charge different prices to different customers for the same product to capture consumer surplus.

Nash Equilibrium

An outcome in a strategic game where every player's choice is the best response to the choices of others.

Hurdle Method

A pricing strategy that requires customers to overcome an obstacle, like a coupon, to obtain a discount.