100 Economics Terms – Flashcards
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Scarcity
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the limited nature of society's resources
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Economics
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the study of how society manages its scarce resources
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Efficiency
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the property of society getting the most it can from its scarce resources
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Equity
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the property of distributing economic prosperity fairly among the members of society
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Opportunity cost
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whatever must be given up to obtain some item
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Market economy
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an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
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Externality
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the impact of one person's actions on the well being of a bystander
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Inflation
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an increase in the overall level of prices in the economy
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Phillips curve
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a curve that shows the short run tradeoff between inflation and unemployment
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Business cycle
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fluctuations in economic activity, such as employment and production
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Circular flow diagram
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a visual model of the economy that shows how dollars flow through markets and firms
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Production possibilities curve
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a graph that show the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
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Microeconomics
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the study of how households and firms make decisions and how they interact in markets
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Macroeconomics
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the study of economy wide phenomena, including inflation, unemployment, and economic growth
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Positive statements
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claims that attempt to describe the world as it is
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Normative statements
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claims that attempt to prescribe how the world should be
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Interdependence
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a reciprocal relation between interdependent entities
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Specialization
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to focus on a particular area
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Absolute advantage
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the comparison among producers of a good according to their productivity
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Comparative advantage
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the comparison among producers according to their opportunity cost
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Imports
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goods produced abroad and sold domestically
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Exports
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goods produced domestically and sold abroad
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Law of demand
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the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
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Normal good
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a good for which, other things equal, an increase in income leads to an increase in demand
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Inferior good
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a good for which, other things equal, an increase in income leads to a decrease in demand
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Substitutes
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two goods for which an increase in the price of one good leads to an increase in the demand for the other good
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Complements
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two goods for which an increase in the price of one good leads to a decrease in the demand for the other good
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Law of supply
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the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
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Equilibrium
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a situation in which the price has reached the level where quantity demanded equals quantity supplied
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Surplus
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a situation in which quantity supplied is greater than quantity demanded
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Shortage
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a situation in which quantity demanded is greater than quantity supplied
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Adam Smith
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Scottish political economist and moral philosopher. His inquiry into the Nature and Causes of the Wealth of Nations was one of the earliest attempts to study the historical development of industry and commerce in Europe. That work helped to create the modern academic discipline of economics and provided one of the best known intellectual rationales for free trade and capitalism
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John Maynard Keynes
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an English economist, whose radical ideas had a major impact on modern economic and political theory as well as Franklin D. Roosevelt's New Deal. He is particularly remembered for advocating interventionist government policy, by which the government would use fiscal and monetary measures to aim to mitigate the adverse effects of economic recessions, depressions, and booms. He is considered to be the founder of macroeconomics.
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Elasticity
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a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants
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Price elasticity of demand
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a measure of how much the quantity demand of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
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Income elasticity of demand
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a measure of how much the quantity demanded of a good responds too a change in consumer's income, computed as the percentage change in quantity demanded divided by the percentage change in income
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Cross price elasticity of demand
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a measure of how much the quantity demanded of one goods responds to a change in price of another good, computed as the parentage change in quantity demanded of one good divided by the percentage change in price of the second good
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Price elasticity of supply
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a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price
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Price ceiling
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a legal maximum on the price at which a good can be sold
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Price floor
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a legal minimum on the price at which a good can be sold
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Tax incidence
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the manner in which the burden of a tax is shared among participants in a market
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Welfare economics
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the study of how the allocation of resources affects economic well being
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Consumer surplus
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a buyer's willingness to pay minus the amount the buyer actually pays
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Producer surplus
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the amount a seller is paid for a good minus the seller's cost
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Cost
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the value of everything a seller must give up to produce a good
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Deadweight loss
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the fall in total surplus that results from a market distortion, such as a tax
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Laffer Curve
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a curved graph that illustrates the theory that, if tax rates rise beyond a certain level, they discourage economic growth, thereby reducing government revenues
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Supply side economics
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the branch of economics that concentrates on measures to increase output of goods and services in the long run. The basis is that marginal tax rates should be reduced to provide incentives to supply additional labor and capital, and thereby promote long term growth.
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Tariff
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a tax on goods produced abroad and sold domestically
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Import quota
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a limit on the quantity of a good that can be produced abroad and sold domestically
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Coase theorem
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the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own
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Pigovian tax
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a tax enacted to correct the effects of a negative externality
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Private goods
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goods that are both excludable and rival
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Public goods
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goods that are neither excludable nor rival
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Free rider
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a person who receives the benefits of a good but avoids paying for it
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Budget surplus
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an excess of government receipts over government spending
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Budget deficit
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a shortfall of tax revenue from government spending
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Average tax rate
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total taxes paid divided by total income
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Marginal tax rate
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the extra taxes paid on an additional dollar of income
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Lump sum tax
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a tax that is the same amount for every person
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Proportional tax
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a tax for which higher income taxpayers and low income taxpayers pay the same fraction of income
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Regressive tax
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a tax for which higher income tax payers pay a smaller fraction of their tax than do lower income tax payers
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Progressive tax
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a tax for which higher income taxpayers pay a larger portion of their tax than do lower income tax payers
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Total revenue
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the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold
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Total cost
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the value of the inputs a firm uses in production
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Profit
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total revenue minus total cost
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Explicit costs
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input costs that require an outlay of money by the firm
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Implicit costs
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input costs that no not require the outlay of money by the firm
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Economic profit
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total revenue minus total cost including explicit and implicit costs
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Accounting profit
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total revenue minus explicit cost
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Production function
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the relationship between quantities of inputs used to make a good and the quantity of output of that good
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Marginal product
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the increase in output that arises from an additional unit of input
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Diminishing marginal product
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the property whereby the marginal product of an input declines as the quantity of the input increases
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Fixed costs
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costs that do not vary with the quantity of output produced
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Variable cost
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costs that vary with the quantity of output produced
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Average total cost
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total cost divided by the quantity of output
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Average fixed cost
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fixed costs divided by the quantity of output
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Average variable cost
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variable costs divided by the quantity of output
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Marginal cost
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an increase in total cost that arises from an extra unit of production
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Efficient scale
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the quantity of input that minimizes average total cost
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Economies of scale
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the property whereby long run average total cost falls as the quantity of output increases
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Diseconomies of scale
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the property whereby long run average total cost rises as the quantity of output increases
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Constant return to scale
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the property whereby long run average total cost stays the same as the quantity of output changes
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Competitive market
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a market with buyers and sellers trading identical products so that each buyer and seller is a price taker
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Average revenue
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total revenue divided by the quantity sold
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Marginal revenue
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the change in total revenue from an additional unit sold
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Sunk cost
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a cost that has already been committed and cannot be recovered
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Natural Monopoly
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a firm that arises because a single firm can supply a good of service to an entire market at a smaller cost than could two or more firms
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Price discrimination
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the business practice of selling the same good at different prices to different customers
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Oligopoly
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a market structure in which only a few sellers offer similar or identical products
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Monopolistic completion
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a market structure in which many firms sell products that similar but not identical
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Collusion
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an agreement among firms in a market about quantities to produce or prices to charge
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Cartel
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a group of firms acting in unison
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Nash equilibrium
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a situation in which economic actors interaction with one another each choose their best strategy given the strategies that all the other actors have chosen
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Game theory
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the study of how people behave in strategic situations
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Factors of production
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the inputs used to produce goods and services
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Lorenz Curve
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a curve showing the distribution of income in an economy. The cumulated percentage of families (income receivers) is measured along the horizontal axis and the cumulated percentage of income is measured along the vertical axis
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Capital
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the equipment and structures used to produce goods and services
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Monopoly
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a firm that is the sole seller of a product without close substitutes
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Marginal Product of Labor
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the increase in the amount of output from an additional unit of labor
