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Economics 101
Fundamental economics concepts including supply and demand, market structures, and macroeconomic indicators.
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Supply and Demand
Price is determined where supply meets demand; if demand rises and supply stays, price increases
GDP (Gross Domestic Product)
Total value of all goods and services produced in a country in a given year; measures economic output
Inflation
General increase in prices over time; decreases purchasing power; measured by CPI
Recession
Two consecutive quarters of declining GDP; rising unemployment; reduced spending
Opportunity Cost
The value of the next best alternative given up when making a choice
Scarcity
Limited resources vs unlimited wants; the fundamental economic problem
Elasticity
How much quantity demanded/supplied changes when price changes; elastic = large change, inelastic = small change
Monopoly
Market with a single seller; no competition; can set prices; barriers to entry
Perfect Competition
Many sellers, identical products, no barriers to entry; price takers; theoretical ideal
Oligopoly
Market dominated by a few large firms; interdependent pricing; examples: airlines, telecom
Fiscal Policy
Government use of spending and taxation to influence the economy; done by Congress/Parliament
Monetary Policy
Central bank controls money supply and interest rates to manage the economy; done by the Fed
Federal Reserve (The Fed)
US central bank; sets interest rates; controls money supply; lender of last resort
Interest Rate
Cost of borrowing money; when rates rise, borrowing decreases; when rates fall, borrowing increases
Comparative Advantage
A country should produce goods where it has the lowest opportunity cost; basis for trade
Marginal Cost
The cost of producing one additional unit of a good
Marginal Utility
The additional satisfaction from consuming one more unit; diminishes with each additional unit
Consumer Price Index (CPI)
Measures average change in prices paid by consumers; used to calculate inflation rate
Unemployment Rate
Percentage of labor force that is jobless and actively seeking work
Trade Deficit
When a country imports more than it exports; opposite is trade surplus
Externality
Cost or benefit affecting a third party not involved in a transaction; positive or negative
Public Good
Non-excludable and non-rivalrous; examples: national defense, street lights; often provided by government
Market Failure
When free markets fail to allocate resources efficiently; caused by externalities, monopolies, or public goods
Adam Smith
Father of economics; wrote 'The Wealth of Nations' (1776); invisible hand theory; free market advocate
John Maynard Keynes
Advocated government intervention during recessions; Keynesian economics; influenced New Deal
Law of Diminishing Returns
Adding more of one input while holding others constant eventually yields smaller increases in output
Budget Deficit
When government spending exceeds revenue (taxes); adds to national debt
Exchange Rate
Price of one currency in terms of another; affects imports and exports
Tariff
Tax on imported goods; protects domestic industries; raises prices for consumers
Subsidy
Government payment to producers to lower costs and encourage production
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