Key Concepts in Economics

Definition: Economics is the study of how individuals, businesses, governments, and societies make choices about allocating scarce resources.
Microeconomics:
- Focuses on individual agents (households, firms).
- Analyzes supply and demand, price determination, and consumer behavior.
- Key concepts:
  - Elasticity: Measure of responsiveness of quantity demanded or supplied to price changes.
  - Utility: Satisfaction or benefit derived from consuming goods/services.
Macroeconomics:
- Looks at the economy as a whole.
- Studies aggregate indicators such as GDP, unemployment rates, and inflation.
- Key concepts:
  - Gross Domestic Product (GDP): Total value of all goods and services produced in a country.
  - Inflation: Rate at which the general level of prices for goods and services rises.
  - Monetary Policy: Central bank actions that manage money supply and interest rates.
Supply and Demand:
- Law of Demand: As price decreases, quantity demanded increases, and vice versa.
- Law of Supply: As price increases, quantity supplied increases, and vice versa.
- Equilibrium: Point where supply equals demand, determining market price.
Market Structures:
- Perfect Competition: Many firms, identical products, easy entry/exit.
- Monopolistic Competition: Many firms, differentiated products.
- Oligopoly: Few firms, potential for collusion, strategic interactions.
- Monopoly: Single firm dominates market, high barriers to entry.
Economic Systems:
- Traditional Economy: Based on customs and traditions.
- Command Economy: Government controls resources and production.
- Market Economy: Decisions driven by supply and demand with minimal government intervention.
- Mixed Economy: Combines elements of market and command economies.
Key Economic Indicators:
- Unemployment Rate: Percentage of the labor force that is jobless and actively seeking employment.
- Consumer Price Index (CPI): Measures changes in the price level of a basket of consumer goods and services.
- Balance of Trade: Difference between a country's exports and imports.
Fiscal Policy:
- Government's use of taxation and spending to influence the economy.
- Expansionary fiscal policy: Increased spending or tax cuts to stimulate growth.
- Contractionary fiscal policy: Decreased spending or tax increases to slow down growth.
Global Economics:
- Trade: Exchange of goods and services between countries.
- Exchange Rates: Value of one currency for the purpose of conversion to another.
- Globalization: Process of increased interconnectedness among countries, economically and culturally.
Basic Economic Principles:
- Scarcity: Limited resources vs. unlimited wants.
- Opportunity Cost: Cost of the next best alternative foregone when a choice is made.
- Comparative Advantage: Ability of a party to produce a good at a lower opportunity cost than another.

Definition and Scope of Economics

Economics studies choices made by individuals, businesses, governments, and societies concerning scarce resources.

Microeconomics

Analyzes individual agents such as households and firms.
Key concepts include:
- Elasticity: Responsiveness of quantity demanded or supplied to price changes.
- Utility: Satisfaction gained from consumption of goods and services.

Macroeconomics

Examines the economy as a whole, focusing on aggregate indicators.
Important concepts include:
- Gross Domestic Product (GDP): Total value of all finished goods and services produced in a country.
- Inflation: The rate of increase in the general price level of goods and services.
- Monetary Policy: Central bank measures that influence money supply and interest rates.

Supply and Demand

Law of Demand: A decrease in price results in increased quantity demanded, and vice versa.
Law of Supply: An increase in price leads to a higher quantity supplied, and vice versa.
Equilibrium: The market price at which supply equals demand.

Market Structures

Perfect Competition: Many firms with identical products and easy market entry/exit.
Monopolistic Competition: Many firms offering differentiated products.
Oligopoly: Few firms with potential for strategic collusion.
Monopoly: A single firm dominates the market with high entry barriers.

Economic Systems

Traditional Economy: Based on customs and traditions.
Command Economy: Government controls resource allocation and production.
Market Economy: Decisions made by supply and demand, with limited government intervention.
Mixed Economy: A blend of command and market economy elements.

Key Economic Indicators

Unemployment Rate: Proportion of the labor force that is jobless yet actively seeking work.
Consumer Price Index (CPI): Index measuring price changes of a basket of consumer goods and services.
Balance of Trade: The difference between a country’s exports and imports.

Fiscal Policy

Government taxing and spending actions aimed to influence economic performance.
Expansionary Fiscal Policy: Involves increased public spending or tax cuts to foster growth.
Contractionary Fiscal Policy: Involves reduced spending or tax hikes to slow economic activity.

Global Economics

Trade: The exchange process of goods and services between nations.
Exchange Rates: Measure the value of one currency as it relates to another.
Globalization: The phenomenon of economic and cultural interconnectedness across nations.

Basic Economic Principles

Scarcity: The condition of limited resources in contrast to unlimited wants.
Opportunity Cost: The cost associated with the next best alternative when making a choice.
Comparative Advantage: The ability of an entity to produce goods at a lower opportunity cost compared to another.