Untitled Flashcards Set

Chapter 1: Introduction to Economics

🔹 Q: What is scarcity?
🔹 A: Scarcity means limited resources force individuals and societies to make choices.

🔹 Q: What is opportunity cost?
🔹 A: The value of the best alternative given up when making a choice.

🔹 Q: What is comparative advantage?
🔹 A: The ability to produce a good at a lower opportunity cost than another producer.

🔹 Q: What is the Production Possibilities Frontier (PPF)?
🔹 A: A graph showing the maximum combinations of goods/services that can be produced with available resources.

🔹 Q: What does the Circular Flow Model illustrate?
🔹 A: The interactions between households, businesses, and government in an economy.

🔹 Q: What is the difference between microeconomics and macroeconomics?
🔹 A: Microeconomics studies individual choices, while macroeconomics studies the entire economy.

Chapter 2: Demand

🔹 Q: What is the Law of Demand?
🔹 A: As price increases, quantity demanded decreases (and vice versa), assuming all other factors remain constant.

🔹 Q: What are normal goods?
🔹 A: Goods for which demand increases when income increases.

🔹 Q: What are inferior goods?
🔹 A: Goods for which demand decreases when income increases.

🔹 Q: What are substitutes?
🔹 A: Goods that can replace each other (e.g., Coke and Pepsi).

🔹 Q: What are complements?
🔹 A: Goods that are consumed together (e.g., cars and gasoline).

🔹 Q: What is marginal benefit?
🔹 A: The additional benefit from consuming one more unit of a good.

Chapter 3: Supply

🔹 Q: What is the Law of Supply?
🔹 A: As price increases, quantity supplied increases (and vice versa), assuming all other factors remain constant.

🔹 Q: What are sunk costs?
🔹 A: Costs that cannot be recovered and should not influence future decisions.

🔹 Q: What factors shift the supply curve?
🔹 A: Technology, input prices, prices of related goods, future expectations, number of suppliers.

Chapter 4: Market Equilibrium

🔹 Q: What is equilibrium price?
🔹 A: The price where quantity demanded equals quantity supplied.

🔹 Q: What happens when there is a surplus?
🔹 A: When quantity supplied is greater than quantity demanded, prices tend to fall.

🔹 Q: What happens when there is a shortage?
🔹 A: When quantity demanded is greater than quantity supplied, prices tend to rise.

🔹 Q: What is consumer surplus?
🔹 A: The difference between what consumers are willing to pay and what they actually pay.

🔹 Q: What is producer surplus?
🔹 A: The difference between what producers receive and the minimum they are willing to accept.

Chapter 5: Macroeconomics vs. Microeconomics

🔹 Q: What is a business cycle?
🔹 A: The periodic fluctuations of GDP over time (expansion, peak, contraction, trough).

🔹 Q: What is the paradox of thrift?
🔹 A: Increased saving can reduce overall demand and slow economic growth.

Chapter 6: Measuring GDP

🔹 Q: What is Gross Domestic Product (GDP)?
🔹 A: The total market value of all final goods/services produced within a country.

🔹 Q: What is nominal GDP?
🔹 A: GDP measured using current prices (includes inflation).

🔹 Q: What is real GDP?
🔹 A: GDP adjusted for inflation (better measure of economic growth).

🔹 Q: What is GDP per capita?
🔹 A: Real GDP divided by population; a measure of living standards.

Chapter 7: Economic Growth & Business Cycles

🔹 Q: What is potential GDP?
🔹 A: The highest level of GDP possible with fully employed resources.

🔹 Q: What is economic growth?
🔹 A: An increase in a nation’s productive capacity, leading to higher living standards.

🔹 Q: What is a recession?
🔹 A: Two consecutive quarters of declining real GDP.

🔹 Q: What is an output gap?
🔹 A: The difference between real GDP and potential GDP.

🔹 Q: What is a recessionary gap?
🔹 A: When real GDP is below potential GDP, leading to high unemployment.

🔹 Q: What is an inflationary gap?
🔹 A: When real GDP is above potential GDP, leading to rising inflation.

Chapter 8: Unemployment & Inflation

🔹 Q: How is the unemployment rate calculated?
🔹 A: The percentage of the labor force that is unemployed and actively seeking work.

🔹 Q: What are the types of unemployment?

1. Frictional Unemployment: Short-term job transitions.

2. Structural Unemployment: Mismatch of skills and available jobs.

3. Cyclical Unemployment: Job loss due to economic downturns.

🔹 Q: What is full employment?
🔹 A: When the only unemployment in an economy is frictional and structural.

🔹 Q: What is inflation?
🔹 A: A general rise in price levels, reducing purchasing power.

🔹 Q: What is the Consumer Price Index (CPI)?
🔹 A: A measure of the change in prices of a fixed basket of goods/services.

🔹 Q: What causes inflation?

1. Demand-Pull Inflation: Too much demand.

2. Cost-Push Inflation: Higher production costs.

3. Stagflation: High inflation + economic stagnation.

🔹 Q: What is the Phillips Curve?
🔹 A: A short-term trade-off between inflation and unemployment.

🔹 Q: What is deflation?
🔹 A: A persistent fall in prices, discouraging spending and investment.