Terms Flashcards
Scarcity
The limited nature of society’s resources
Economics
Study of how society manages its scarce resources
Efficiency
The property of society getting the most it can from its scarce resources
Equity
The property of distributing economic prosperity fairly among the members of society
Opportunity Cost
Whatever must be given up to obtain some item
Rational People
Those who systematically & purposefully do the best they can to achieve their objectives
Marginal Changes
Small incremental adjustments to a plan of action
Incentive
Something that induces a person to act
Market Economy
An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
Property Rights
The ability of an individual to own and exercise control over scarce resources
Market Failure
A situation in which a market left on its own fails to allocate resources efficiently
Externality
The impact of one person’s actions on the well-being of a bystander
Market Power
The ability of a single economic actor to have a substantial influence on market prices
Productivity
The quantity of goods and services from each hour of a worker’s time
Inflation
An increase in the overall level of prices in the economy
Business Cycle
Fluctuations in economic activity such as employment and production
Circular Flow Diagram
A visual model of the economy that shows how dollars flow through markets among households and firms
Production Possibilities Frontier
A graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
Macroeconomics
The study of economy wide phenomena, including inflation, unemployment, and economic growth
Microeconomics
The study of how households and firms make decisions and how they interact in market
Positive Statements
Claims that attempt to describe the world as it is
Normative Statements
Claims that attempt to prescribe how the world should be
Market
A group of buyers and sellers of a particular good or service
Competitive Market
A market in which there are many buyers and many sellers so that each has a negligible impact on the market price
Monopoly
A market with only one seller that sets the price
The Demand Curve
The relationship between price and quantity demanded
Quantity Demanded
The amount of a good that buyers are willing and able to purchase
Law of Demand
The claim that other things equal the quantity demanded of a good falls when teh price of the good rises
Demand Schedule
A table that shows the relationship between the price of a good and the quantity demanded
Demand Curve
A graph of the relationship between the price of a good and the quantity demanded
Market Demand
Sum of all the individual demands for a particular good or service
Normal Good
A good for which, other things equal, an increase in income leads to an increase in demand
Inferior Good
A good for which, other things equal, an increase in income leads to a decrease in demand
Substitutes
Two goods for which an increase in the price of one leads to an increase in the demand for the other
Complements
Two goods for which an increase in the price of one leads to a decrease in the demand for the other
Quantity Supplied
The amount of a good that sellers are willing and able to sell
Law of Supply
The claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
Supply Schedule
A table that shows the relationship between the price of a good and the quantity supplied
Consumer Price Index (CPI)
A measure of the overall cost of the goods and services bought by a consumer
Inflation Rate
The percentage change in the price index from the preceding period
Core Inflation
A measure of the underlying trend of inflation
Indexation
The automatic correction of a dollar amount for the effects of inflation by law or contract
Nominal Interest Rate
The interest rate as usually reported without a correction for the effects of inflation
Real Interest Rate
The interest rate corrected for the effects of inflation
Supply Curve
A graph of the relationship between the price of a good and the quantity supplied
Market Supply
Sum of the supplies of all sellers
Input Prices
When the price of an input into a good rises, the good becomes less profitable and is produced less, supply is negatively related to the price of inputs
Technology
The reducing of a firms cost through technology advances increases supply
Expectations
Supply may decrease if price is expected to rise int he future and store current production
Number of sellers
Supply would fall if there were less overall sellers
Equilibrium
A situation in which the price has reached the level where quantity supplied equals quantity demanded
Equilibrium Price
The price that balances quantity supplied and quantity demanded
Equilibrium Quantity
The quantity supplied and the quantity demanded at the equilibrium price
Surplus
A situation in which quantity supplied is greater than quantity demanded
Shortage
A situation in which quantity demanded is greater than quantity supplied
Law of Supply and Demand
The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
Gross Domestic Product (GDP)
The market value of all final goods and services produced within a country in a given period of time
Consumption (C)
Spending by household on goods and services with the exception of purchases of new housing
Investment (I)
Spending on capital equipment, inventories and structures, including household purchase of new housing
Government Purchases (G)
Spending on goods and services by local, territorial, provincial and federal governments
Net Exports (NX)
The value of a nation’s exports minus the value of its import, also called the trade balance
Nominal GDP
The production of goods and services valued at current prices
Real GDP
The production of goods and services valued at constant prices
GDP deflator
A measure of the price level calculated as the ratio of nominal GDP to real GDP times 100
Productivity
The quantity of goods and services produced from each hour of a worker’s time
Physical Capital
The stock of equipment and structures that are used to produce goods and services
Human Capital
The knowledge and skills workers acquire through education, training and experience
Natural Resources
The inputs into the production of goods and services that are provided by nature, such as land, rivers and mineral deposits
Technological Knowledge
Society’s understanding of the best ways to produce goods and services
Diminishing Returns
The property whereby the benefit from an extra unit of an input declines as the quantity of the input increases
Catch-up Effect
The property whereby countries that start off poor tend to grow more rapidly than countries that start off rich
Foreign Direct Investment
A capital investment that is owned and operated by a foreign entity
Foreign Portfolio Investment
An investment that is financed with foreign money but operated by domestic residents
Externality
The effect of one person’s actions on the well-being of a bystander
Brain Drain
The emigration of highly educated workers to rich countries
Property Rights
The ability of people to exercise authority over the resources they own
Inward-oriented Policies
Raising productivity and living standards within the country by avoiding interaction with the rest of the world
Outward-Oriented Policies
Integration of countries into the world economy
Public Good
Once one person discovers an idea, the idea enters society’s pool of knowledge and other people can freely use it
Thomas Malthus
Argued that an increasing population would strain society’s resources and keep everyone permanently in poverty
Michael Kremer
Argued that the growth of the world population also grows technological progress and economic prosperity
