Question
Answer
Economics
The study of how individuals and societies allocate scarce resources
Scarcity
The fundamental problem that resources are limited but wants are unlimited
Opportunity Cost
The value of the next best alternative given up when making a choice
Supply
The quantity of a good or service producers are willing to sell at various prices
Demand
The quantity of a good or service consumers are willing to buy at various prices
Law of Demand
As price increases
Law of Supply
As price increases
Equilibrium
The point where quantity supplied equals quantity demanded
Surplus
When quantity supplied exceeds quantity demanded at a given price
Shortage
When quantity demanded exceeds quantity supplied at a given price
Price Ceiling
A maximum legal price set below equilibrium (e.g. rent control)
Price Floor
A minimum legal price set above equilibrium (e.g. minimum wage)
Elasticity
A measure of how sensitive quantity is to a change in price
Elastic Demand
When a price change causes a proportionally larger change in quantity demanded
Inelastic Demand
When a price change causes a proportionally smaller change in quantity demanded
GDP (Gross Domestic Product)
The total market value of all goods and services produced in a country in a year
GNP (Gross National Product)
Total output produced by a country's residents regardless of location
Inflation
A general rise in the price level of goods and services over time
Deflation
A general decrease in the price level of goods and services over time
CPI (Consumer Price Index)
A measure of the average change in prices paid by consumers over time
Unemployment Rate
The percentage of the labour force that is jobless and actively seeking work
Frictional Unemployment
Temporary unemployment between jobs
Structural Unemployment
Unemployment caused by a mismatch between workers' skills and available jobs
Cyclical Unemployment
Unemployment caused by a downturn in the business cycle
Natural Rate of Unemployment
The normal level of unemployment when the economy is healthy
Recession
Two consecutive quarters of negative GDP growth
Depression
A severe and prolonged recession with high unemployment
Business Cycle
The recurring pattern of expansion and contraction in economic activity
Fiscal Policy
Government use of spending and taxation to influence the economy
Monetary Policy
Central bank use of interest rates and money supply to influence the economy
Interest Rate
The cost of borrowing money expressed as a percentage
Central Bank
An institution that manages a country's currency and monetary policy (e.g. the Fed)
Federal Reserve
The central bank of the United States
Money Supply
The total amount of money in circulation in an economy
Quantitative Easing
Central bank buying assets to inject money into the economy
Budget Deficit
When government spending exceeds tax revenue
Budget Surplus
When government tax revenue exceeds spending
National Debt
The total accumulated government borrowing over time
Tax
A compulsory financial charge imposed by the government
Progressive Tax
A tax where the rate increases as income increases
Regressive Tax
A tax that takes a larger percentage from lower-income earners
Subsidy
Financial assistance given by the government to support an industry or activity
Tariff
A tax on imported goods
Trade Deficit
When a country imports more than it exports
Trade Surplus
When a country exports more than it imports
Free Trade
Trade between countries without restrictions or tariffs
Comparative Advantage
The ability to produce a good at a lower opportunity cost than others
Absolute Advantage
The ability to produce more of a good with the same resources
Globalization
The increasing interconnectedness of economies worldwide
Market Economy
An economy where decisions are made by supply and demand
Command Economy
An economy where the government controls production and prices
Mixed Economy
An economy combining elements of market and command economies
Perfect Competition
A market with many sellers
Monopoly
A market with a single seller controlling the entire supply
Oligopoly
A market dominated by a small number of large firms
Duopoly
A market with only two competing firms
Cartel
A group of firms that collude to fix prices and control supply
Externality
A cost or benefit affecting a third party not involved in a transaction
Positive Externality
A benefit to a third party (e.g. education increasing productivity)
Negative Externality
A cost to a third party (e.g. pollution from a factory)
Public Good
A good that is non-excludable and non-rival (e.g. national defence)
Private Good
A good that is excludable and rival (e.g. a sandwich)
Market Failure
When the free market fails to allocate resources efficiently
Invisible Hand
Adam Smith's concept that self-interest drives efficient markets
Keynesian Economics
The theory that government spending can stimulate economic growth
Supply-Side Economics
The theory that tax cuts and deregulation stimulate economic growth
Microeconomics
The study of individual economic decisions by consumers and firms
Macroeconomics
The study of the economy as a whole
Utility
The satisfaction or benefit derived from consuming a good or service
Marginal Utility
The additional satisfaction from consuming one more unit
Diminishing Marginal Utility
Each additional unit consumed provides less satisfaction
Consumer Surplus
The difference between what a consumer is willing to pay and what they pay
Producer Surplus
The difference between what a producer receives and the minimum they'd accept
Deadweight Loss
The loss of economic efficiency due to market distortions
Human Capital
The skills
Capital Goods
Goods used to produce other goods (e.g. machinery
Labour
Human effort used in the production of goods and services
Land
Natural resources used in production
Entrepreneur
A person who organises resources to start and run a business
Profit
Total revenue minus total costs
Revenue
The total income generated from selling goods or services
Fixed Costs
Costs that do not change with output (e.g. rent)
Variable Costs
Costs that change with output (e.g. materials)
Marginal Cost
The cost of producing one additional unit
Economies of Scale
Cost advantages gained by increasing production
Depreciation
The reduction in value of an asset over time
Exchange Rate
The price of one currency in terms of another
Appreciation
An increase in the value of a currency
Depreciation (currency)
A decrease in the value of a currency
Hyperinflation
Extremely rapid and out-of-control inflation
Stagflation
High inflation combined with high unemployment and slow growth
Austerity
Government policies of reduced spending to reduce debt
Laissez-Faire
An economic policy of minimal government intervention
Protectionism
Government policies that restrict international trade
Index Fund
A fund that tracks a market index like the S&P 500
Bond
A fixed income instrument representing a loan made by an investor to a borrower
Stock
A share of ownership in a company
Dividend
A portion of a company's profits distributed to shareholders
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