Key Concepts in Economics

Scarcity: Limited resources vs. unlimited wants; necessitates choices.
Opportunity Cost: The value of the next best alternative foregone when making a decision.
Supply and Demand:
- Demand: Quantity of a good consumers are willing to buy at various prices.
- Supply: Quantity of a good producers are willing to sell at various prices.
- Equilibrium: Point where supply equals demand.

Microeconomics: Study of individual consumers and businesses; focuses on supply and demand, pricing, and competition.
Macroeconomics: Study of aggregate economic outcomes; focuses on national income, inflation, unemployment, and economic growth.

Gross Domestic Product (GDP): Total value of all goods and services produced in a country within a specific period.
Unemployment Rate: Percentage of the labor force that is unemployed and actively seeking employment.
Inflation Rate: Rate at which the general level of prices for goods and services is rising.

Market Economy: Decisions made by individuals or the open market; characterized by voluntary exchange.
Command Economy: Government makes all economic decisions; resources are allocated based on central planning.
Mixed Economy: Combines elements of market and command economies; features both private and public sectors.

Classical Economics: Belief in self-regulating markets and the importance of free markets.
Keynesian Economics: Advocates for government intervention to stabilize economic fluctuations.
Monetarism: Focuses on the control of money supply as a means to manage economic stability.

Fiscal Policy: Use of government spending and taxation to influence the economy.
Monetary Policy: Management of the money supply and interest rates by central banks to control inflation and stabilize currency.

Examines how psychological factors affect economic decision-making; challenges the idea of rational behavior in markets.

Trade Theories:
- Comparative Advantage: Countries should specialize in producing goods they can produce most efficiently.
- Protectionism: Economic policy of restricting imports to protect domestic industries.
Exchange Rates: Value of one currency in relation to another; affects international trade and investment.

Externalities: Costs or benefits incurred by a third party not directly involved in a transaction; can be positive or negative.
Public Goods: Goods that are non-excludable and non-rivalrous; provided by the government (e.g., national defense).
Market Failures: Situations where free markets fail to efficiently allocate resources, often requiring government intervention.

Scarcity is the fundamental economic problem. It exists because our wants are unlimited but our resources are not. This forces us to make choices among alternatives.
Opportunity cost is the value of the best alternative foregone when making a choice. For example, the opportunity cost of attending a concert might be the money you could have earned working.

Demand refers to the quantity of a good that consumers are willing and able to purchase at different prices.
Supply refers to the quantity of a good that producers are willing and able to sell at different prices.
Equilibrium is reached when the quantity supplied equals the quantity demanded. The price at which this occurs is the equilibrium price.

Microeconomics focuses on the behavior of individual consumers, firms, and industries. It examines topics like supply and demand, pricing strategies, and competition within specific markets.
Macroeconomics studies the economy as a whole. It focuses on aggregate variables like national income, inflation, unemployment, and economic growth.

Gross Domestic Product (GDP) measures the total value of all goods and services produced within a country's borders during a specific period. It is used to track economic growth and performance.
Unemployment rate measures the percentage of the labor force that is unemployed and actively seeking employment. It reflects the health of the labor market.
Inflation rate measures the rate at which the general level of prices for goods and services is rising. It indicates the erosion of the purchasing power of money.

Market economy is characterized by private property rights, free markets, and decentralized decision-making. In a market economy, individuals and firms make decisions based on their own self-interest.
Command economy is characterized by central planning and government control over resources. The government determines what goods and services are produced, how they are produced, and who receives them.
Mixed economy combines elements of both market and command economies. Most modern economies are mixed, with a combination of private ownership and government regulation.

Classical economics emphasizes the importance of free markets and minimal government intervention. It believes that markets are self-regulating and that government intervention can often be counterproductive.
Keynesian economics argues that government intervention is necessary to stabilize the economy, especially during recessions. It advocates for policies like government spending and tax cuts to stimulate demand.
Monetarism focuses on the role of money supply in determining economic activity. Monetarists argue that the central bank should control the money supply to maintain price stability and promote economic growth.

Fiscal policy refers to the use of government spending and taxation to influence the economy. For example, increasing government spending can stimulate economic growth, while raising taxes can slow down economic activity.
Monetary policy involves the management of the money supply and interest rates by central banks. These policies aim to control inflation, stabilize the currency, and promote economic growth.

Behavioral economics studies how psychological factors influence economic decision-making. It challenges the traditional view of economic agents as rational actors and recognizes that people are subject to cognitive biases.

Trade theories explain the patterns of international trade and the benefits of free trade.
- Comparative advantage states that countries should specialize in producing goods they can produce most efficiently relative to other countries.
- Protectionism refers to economic policies designed to protect domestic industries from foreign competition through measures like tariffs and quotas.
Exchange rates refer to the value of one currency expressed in terms of another currency. They influence international trade and investment by affecting the relative prices of goods and services between countries.

Externalities are costs or benefits that are incurred by a third party not directly involved in a transaction. They can be positive or negative. For example, pollution is a negative externality, while education can be a positive externality.
Public goods are non-excludable and non-rivalrous. This means that it is difficult to exclude people from enjoying the benefits of the good, and one person's consumption does not diminish another person's consumption.
Market failures occur when free markets fail to efficiently allocate resources. Examples include monopolies, externalities, and information asymmetry. Market failures often require government intervention to correct the inefficiency.