Section 1 VOCABULARY: BASIC ECONOMIC CONCEPTS

Question 1

Economics

Answer 1

The study of how people and societies choose to use limited resources to meet their needs and wants. It looks at how we make decisions about production, consumption, and distribution.

Question 2

Market Economy

Answer 2

An economic system where decisions about what to produce, how to produce, and for whom to produce are guided by the interactions of citizens and businesses in the marketplace.

Question 3

Scarcity

Answer 3

The basic economic problem that arises because resources (like time, money, and materials) are limited, while human wants are unlimited. This means we have to make choices about how to use our resources.

Question 4

Opportunity Cost:

Answer 4

The value of the next best alternative that you give up when you make a decision. For example, if you spend time studying instead of going out with friends, the opportunity cost is the enjoyment you miss out on with your friends.

Question 5

Microeconomics:

Answer 5

The branch of economics that studies individual and business decisions and how they interact in markets. It focuses on specific aspects like how households and firms make choices.

Question 6

Macroeconomics

Answer 6

The branch of economics that looks at the economy as a whole. It examines large-scale economic factors like national income, inflation, and unemployment.

Question 7

Positive Economics:

Answer 7

The part of economics that deals with objective analysis and facts. It focuses on describing, explaining, and predicting economic phenomena without judging whether they are good or bad.

Question 8

Normative Economics:

Answer 8

The part of economics involves value judgments about what the economy should be like. It focuses on what ought to be rather than what is.

Question 9

Business Cycle:

Answer 9

The natural rise and fall of economic growth over time. It includes periods of expansion (growth), peak (highest point), recession (decline), and trough (lowest point).

Question 10

Depression:

Answer 10

A severe and prolonged downturn in economic activity. It is deeper and longer-lasting than a recession and involves high unemployment and significant declines in economic output.

Question 11

Recession:

Answer 11

A period of economic decline typically characterized by a decrease in GDP, employment, and spending. It usually lasts for a few months to a few years.

Question 12

Expansion:

Answer 12

A phase in the business cycle where the economy grows and improves. During expansion, economic indicators like GDP and employment rates typically rise.

Question 13

Labor Force:

Answer 13

The total number of people who are available and willing to work, including both employed and unemployed individuals who are actively seeking work.

Question 14

Unemployment Rate:

Answer 14

The percentage of the labor force that is unemployed and actively seeking employment.

Question 15

Inflation:

Answer 15

The rate at which the general level of prices for goods and services rises, causing purchasing power to fall.

Question 16

Deflation:

Answer 16

The decline in the general level of prices for goods and services, which increases the purchasing power of money.

Question 17

Price Stability:

Answer 17

A situation where prices in the economy do not change much over time, avoiding both high inflation and deflation.

Question 18

Ceteris Paribus Assumption:

Answer 18

A Latin phrase meaning “all other things being equal.” It is used in economics to isolate the effect of one variable while keeping other variables constant.

Question 19

Economic Growth:

Answer 19

The increase in the production of goods and services in an economy over time, typically measured by the rise in GDP.

Question 20

Trade-Off:

Answer 20

The idea that choosing one option means giving up another. It represents the cost of making a decision in terms of what you have to forego.

Question 21

Production Possibilities Curve:

Answer 21

A graph that shows the maximum possible output combinations of two goods or services that an economy can achieve given its resources and technology.

Question 22

Trade:

Answer 22

The exchange of goods and services between people or countries. It allows for specialization and access to resources or products that might not be available locally.

Question 23

Specialization:

Answer 23

When individuals, firms, or countries focus on producing a specific good or service in which they are relatively more efficient. This leads to increased productivity and efficiency.

Question 24

Comparative Advantage:

Answer 24

The ability of a person, firm, or country to produce a good or service at a lower opportunity cost than others. It forms the basis for beneficial trade.

Question 25

Absolute Advantage:

Answer 25

The ability of a person, firm, or country to produce more of a good or service using the same amount of resources compared to others.

Question 26

Demand Schedule:

Answer 26

A table that shows the quantity of a good or service that consumers are willing to buy at different prices.