Economics Basics

Microeconomics

• Scarcity: The fundamental economic problem of unlimited wants and needs, but limited resources.
• ** Opportunity Cost**: The value of the next best alternative forgone when making a choice.
• Supply and Demand: The price and quantity of a good or service are determined by the intersection of the supply and demand curves.
  • Law of Supply: As the price of a good increases, the quantity supplied also increases.
  • Law of Demand: As the price of a good decreases, the quantity demanded increases.
• Market Equilibrium: The point at which the supply and demand curves intersect, resulting in no excess supply or demand.
• Consumer Behavior: The study of how individuals make decisions about what goods and services to consume.
  • Utility: The satisfaction or happiness gained from consuming a good or service.
  • Diminishing Marginal Utility: The decrease in utility gained from consuming additional units of a good or service.

Macroeconomics

• Economic Growth: The increase in the production of goods and services in an economy over time.
• Inflation: A sustained increase in the general price level of goods and services in an economy over time.
• Unemployment: The number of people able and willing to work, but unable to find employment.
• Fiscal Policy: The use of government spending and taxation to influence the overall level of economic activity.
  • Expansionary Fiscal Policy: An increase in government spending or a decrease in taxation to stimulate economic growth.
  • Contractionary Fiscal Policy: A decrease in government spending or an increase in taxation to slow down economic growth.
• Monetary Policy: The actions of a central bank to control the money supply and interest rates to influence economic activity.

International Trade

• Gains from Trade: The benefits of trade, including increased efficiency, variety, and innovation.
• Comparative Advantage: The idea that countries should specialize in producing goods and services for which they have a lower opportunity cost.
• Absolute Advantage: The idea that countries should specialize in producing goods and services in which they have a higher productivity.
• Tariffs: Taxes on imported goods and services.
• Trade Barriers: Restrictions on international trade, including tariffs, quotas, and embargoes.

Economic Systems

• Market Economy: An economy in which resources are allocated based on market forces, such as supply and demand.
• Command Economy: An economy in which resources are allocated based on government decisions.
• Mixed Economy: An economy that combines elements of market and command economies.
• Socialism: An economic system in which the means of production are owned and controlled by the state or by the workers themselves.
• Capitalism: An economic system in which the means of production are owned and controlled by private individuals and businesses.