Economics Concepts Flashcards

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Economics is the study of the choices people and societies make to attain their unlimited wants, given their scarce resources.

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It is also considered the study of choice and how to make people better off in terms of their living standards.

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Scarcity refers to the situation in which unlimited wants exceed the limited resources to fulfill those wants.

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Relative scarcity means that only the most important material wants of households, firms, and governments can be satisfied.

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Resources are inputs used to produce goods and services, including natural resources such as land, water, and minerals, labor, capital, and entrepreneurial ability.

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Natural resources include arable land, oil, minerals, and rivers.

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Trade-off is the idea that, because of scarcity, producing more of one good or service means producing less of another good or service.

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Examples of trade-offs include efficiency vs equity, leisure time vs work, and military vs education.

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Opportunity cost is what you give up to get an item.

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Decision-makers should be aware of the opportunity costs that accompany each possible action.

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Marginal changes are small incremental adjustments to a plan of action.

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Rational people often make decisions by comparing marginal benefits and marginal costs.

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Production possibility frontier is a curve showing the maximum attainable combinations of two products that may be produced with available resources.

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It illustrates the concept of opportunity cost in making various choices or economic decisions.

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Microeconomics is the study of how households and firms make decisions and how they interact in specific markets.

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Macroeconomics is the study of economy-wide phenomena.

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Quantity demanded is the amount of a good or service that a consumer is willing and able to buy at a given price.

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The law of demand states that the quantity demanded varies inversely with the change in price.

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Disposable income is the total income that households receive in exchange for their participation in the production process plus government transfers, less direct taxes.

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An increase in disposable income shifts the demand curve to the right.