Mastering
Economics
Essential
Concepts
and
Key Terms for
Students
140
Important Terms of 16 Economics Fields
A. Basic Economic Concepts
1. Scarcity: Limited resources to meet unlimited wants.
2. Opportunity Cost: The value of the next best alternative
foregone when choosing.
3. Utility: Satisfaction or pleasure derived from
consuming a good or service.
4. Marginal Utility: Additional satisfaction gained
from consuming one more unit of a good or service.
5. Diminishing Marginal Utility: The decrease in
satisfaction from consuming additional units of a good.
6. Factors of Production: Resources used in the
production process: land, labor, capital, and entrepreneurship.
7. Production Possibility Frontier (PPF): A curve
showing the maximum feasible output combinations of two products.
8. Comparative Advantage: Ability to produce a good at a
lower opportunity cost than others.
9. Absolute Advantage: Ability to produce more of a
good with the same resources than others.
10. Trade-offs: Compromises made when choosing one option
over another.
B. Microeconomics Terms
1. Demand: The quantity of a good consumers is willing
and able to buy at a given price.
2. Supply: The quantity of a good that producers can sell at a given price.
3. Market Equilibrium: The point where the quantity
demanded equals the quantity supplied.
4. Price Elasticity of Demand: Measures how much the
quantity demanded responds to price changes.
5. Price Elasticity of Supply: Measures how much the
quantity supplied responds to price changes.
6. Consumer Surplus: The difference between what
consumers is willing to pay and what they actually pay.
7. Producer Surplus: The difference between the
price at which producers are willing to sell and the price they actually
receive.
8. Perfect Competition: A market structure with many
buyers and sellers offering identical products.
9. Monopoly: A market structure where a single seller
dominates the market with no close substitutes.
10. Oligopoly: A market structure with a few large firms
dominating the market.
11. Monopolistic Competition: A market structure where
many firms sell similar but differentiated products.
C. Macroeconomics Terms
1. Gross Domestic Product (GDP): The total value of all
final goods and services produced within a country.
2. Real GDP: GDP adjusted for inflation, reflecting the
real value of goods and services.
3. Nominal GDP: GDP measured in current prices,
not adjusted for inflation.
4. Inflation: The rate at which the general level of
prices for goods and services rises.
5. Deflation: A decrease in the general price level of
goods and services.
6. Stagflation: A situation of stagnant
economic growth, high unemployment, and high inflation.
7. Unemployment Rate: The percentage of the labor
force that is jobless and actively seeking employment.
8. Fiscal Policy: Government decisions on
taxation and spending to influence the economy.
9. Monetary Policy: Central bank actions to control
the money supply and interest rates.
10. Interest Rates: The cost of borrowing money,
typically expressed as a percentage.
11. Recession: A period of declining economic activity,
typically defined by two consecutive quarters of negative GDP growth.
12. Expansion: A phase of the business cycle where
economic activity increases.
13. Aggregate Demand: The total demand for goods and
services within an economy.
14. Aggregate Supply: The total supply of goods and
services that firms in an economy are willing to sell.
15. Balance of Trade: The difference between the
value of a country's exports and imports.
D. International Economics
Terms
1. Trade Deficit: When a country imports more
goods and services than it exports.
2. Trade Surplus: When a country exports more
than it imports.
3. Tariff: A tax imposed on imported goods and
services.
4. Quota: A limit on the quantity of goods that can
be imported.
5. Exchange Rate: The value of one currency for
the purpose of conversion to another.
6. Foreign Direct Investment (FDI):
Investment made by a firm or individual in one country into business interests
in another.
7. Globalization: The increasing
interconnectedness of economies, markets, and cultures around the world.
E. Labor Economics Terms
1. Labor Force: The total number of people who
are either employed or actively seeking employment.
2. Human Capital: The skills, knowledge, and
experience possessed by individuals, viewed in terms of their value to an
organization or economy.
3. Wage Rate: The amount of money paid to a worker per
unit of time (e.g., per hour or per year).
4. Productivity: The measure of output per unit
of input, such as labor or capital.
5. Minimum Wage: The lowest legal wage that can
be paid to workers.
6. Collective Bargaining: The process of negotiation
between employers and a group of employees aimed at reaching agreements that
regulate working conditions.
F. Market Failures and
Government Intervention
1. Externalities: Costs or benefits of an
economic activity experienced by third parties. Can be positive (e.g.,
education) or negative (e.g., pollution).
2. Public Goods: Goods that are non-excludable
and non-rivalrous, meaning they can be consumed by many without reducing their
availability (e.g., national defense).
3. Free Rider Problem: Occurs when individuals can
benefit from a good or service without paying for it.
4. Market Failure: When the free market does not
allocate resources efficiently.
5. Subsidy: Government financial support to encourage
the production or consumption of a particular good.
6. Tax Incidence: The study of who bears the
economic burden of a tax.
G. Development Economics
Terms
1. Sustainable Development: Economic development that is
conducted without depletion of natural resources.
2. Human Development Index (HDI): A
composite statistic of life expectancy, education, and per capita income, used
to rank countries' levels of human development.
3. Poverty Line: The minimum level of income
deemed necessary to achieve an adequate standard of living.
4. Microfinance: Financial services, such as
small loans, provided to low-income individuals or small businesses lacking
access to banking.
H. Behavioral Economics
Terms
1. Rational Choice Theory: The assumption that individuals
make decisions that maximize their utility.
2. Bounded Rationality: The idea that in
decision-making, individuals are limited by the information they have, the
cognitive limitations of their minds, and the finite amount of time they have
to make decisions.
3. Prospect Theory: A behavioral economics theory
that describes how people choose between probabilistic alternatives and the way
they perceive gains and losses.
I. Environmental Economics
Terms
1. Carbon Tax: A tax on the carbon content of fossil fuels
to reduce carbon dioxide emissions.
2. Cap-and-Trade: A system for controlling carbon
emissions where companies have limits on emissions but can buy and sell
allowances to emit within the cap.
J. Financial Economics
Terms
1. Arbitrage: The simultaneous purchase and sale of an
asset to profit from a difference in price.
2. Risk-Return Tradeoff: The principle that potential
return rises with an increase in risk.
3. Capital Asset Pricing Model (CAPM): A model
that describes the relationship between risk and expected return.
4. Efficient Market Hypothesis (EMH): The
idea that all available information is already reflected in stock prices, and
it's impossible to consistently outperform the market.
5. Portfolio Diversification: The practice of
spreading investments among different financial assets to reduce risk.
6. Bond Yield: The return an investor gets on a bond.
7. Derivatives: Financial contracts whose value
is derived from the value of an underlying asset (e.g., options, futures).
8. Hedge Funds: Investment funds that employ
high-risk strategies to generate high returns.
9. Leverage: The use of borrowed funds to increase the
potential return of an investment.
10. Initial Public Offering (IPO): The
first sale of stock by a company to the public.
11. Liquidity: The ease with which an asset can be converted
into cash without affecting its price.
12. Market Capitalization: The total market value of a
company's outstanding shares.
13. Short Selling: The practice of selling
borrowed securities with the intention of buying them back later at a lower
price.
14. Beta: A measure of a stock's volatility in relation to
the overall market.
15. Yield Curve: A graph that shows the
relationship between bond yields and maturities.
16. Discount Rate: The interest rate used to
determine the present value of future cash flows.
17. Time Value of Money (TVM): The concept that a sum
of money is worth more now than the same sum in the future due to its earning
potential.
18. Net Present Value (NPV): The value of a series of cash
flows, discounted to the present.
19. Internal Rate of Return (IRR): The
discount rate that makes the net present value of an investment zero.
20. Foreign Exchange (Forex): The market where
currencies are traded.
21. Credit Default Swap (CDS): A financial derivative
that functions as a form of insurance against default by a borrower.
22. Sovereign Debt: Debt issued by a national
government.
23. Equity: Ownership interest in a corporation,
represented by stock.
24. Risk Premium: The extra return expected for
taking on risk, over and above the risk-free rate.
25. Interest Rate Parity: The theory that the difference
in interest rates between two countries is equal to the difference between the
forward and spot exchange rates.
K. Health Economics Terms
1. Cost-Benefit Analysis (CBA): A method used to
evaluate the total costs and benefits associated with a healthcare
intervention.
2. Cost-Effectiveness Analysis (CEA): A
technique that compares the relative costs and outcomes (effects) of different
courses of action.
3. Cost-Utility Analysis (CUA): A form of
cost-effectiveness analysis that incorporates quality-adjusted life years
(QALYs) as a measure of effectiveness.
4. Health Production Function: A model that illustrates
how various inputs (e.g., healthcare, lifestyle, environment) produce health
outcomes.
5. Quality-Adjusted Life Year (QALY): A
measure of the value of health outcomes, combining length and quality of life.
6. Moral Hazard: The idea that people with
insurance may engage in riskier behaviors because they don't bear the full cost
of care.
7. Adverse Selection: The phenomenon where
individuals with higher health risks are more likely to purchase health
insurance, leading to higher costs.
8. Deductible: The amount of money an insured individual
must pay out-of-pocket before the insurance provider begins to pay.
9. Copayment: A fixed amount an insured person must pay for
a covered health service, usually when receiving the service.
10. Premium: The amount paid for an insurance policy.
11. Health Inequality: Differences in health status or
in the distribution of health determinants between different population groups.
12. Externalities in Healthcare: Costs or benefits of
health-related activities experienced by third parties (e.g., vaccination
programs reducing disease spread).
13. Supply-Induced Demand: When healthcare providers
influence patients' decisions to increase the use of medical services,
potentially beyond necessity.
14. Single-Payer System: A healthcare system in which
the government, rather than private insurers, pays for all healthcare costs.
15. Universal Healthcare: A system where every citizen
has access to healthcare services, usually funded by the government.
16. Health Maintenance Organization (HMO): A type
of health insurance plan that provides services through a network of doctors
for a fixed annual fee.
17. Fee-for-Service (FFS): A payment model where services
are unbundled and paid for separately.
18. Capitation: A payment model where healthcare providers
are paid a set amount per patient regardless of how many services the patient
uses.
19. Pharmaceutical Economics: The study of the
cost-effectiveness of drugs and their impact on healthcare systems and patient
outcomes.
20. Health Technology Assessment (HTA): A
process that systematically evaluates the properties, effects, and impacts of
health technology.
L. Industrial Organization
Terms
1. Market Structure: The organizational and other
characteristics of a market, such as the level of competition (e.g., monopoly,
oligopoly, monopolistic competition, perfect competition).
2. Monopoly Power: The ability of a firm to set
prices above competitive levels due to the lack of competition.
3. Oligopoly: A market structure with a few large firms
dominating the market, often leading to collusive behavior.
4. Barriers to Entry: Factors that prevent or hinder
new firms from entering a market.
5. Natural Monopoly: A market situation where a
single firm can supply the entire market at a lower cost than multiple firms
could.
6. Price Discrimination: The practice of charging
different prices to different customers for the same product, based on their
willingness to pay.
7. Cartel: A group of firms that collude to control
prices and limit competition, often in violation of antitrust laws.
8. Antitrust Laws: Regulations designed to promote
competition and prevent monopolies.
9. Horizontal Integration: The acquisition of a business
operating at the same level of the value chain in similar or different
industries.
10. Vertical Integration: The combination of companies
that operate at different stages of the production process.
11. Contestable Market: A market where entry and exit
are easy, making it competitive despite the small number of firms.
12. Merger: The combination of two or more firms to
form a single entity.
13. Acquisition: The purchase of one company by
another.
14. Economies of Scale: Cost advantages that firms
obtain due to size, output, or scale of operation.
15. Economies of Scope: Cost advantages that a firm
experiences by producing a variety of products rather than specializing in a
single product.
16. Game Theory: A mathematical approach used to
model strategic interactions between firms in competitive environments.
17. Nash Equilibrium: A situation in game theory
where no player can benefit from changing their strategy if the other players
keep theirs unchanged.
18. Price Leadership: A strategy where one leading
firm sets the price, and other firms in the market follow suit.
19. X-Inefficiency: The inefficiency that arises
because a firm lacks the competitive pressure to minimize costs.
20. Regulation: The use of laws by the government to
control or influence the behavior of firms.
M. Other Important
Economics Terms
1. Pareto Efficiency: A situation where no individual
can be made better off without making someone else worse off.
2. Tragedy of the Commons: A situation where individual
users, acting independently according to their own self-interest, deplete or
spoil a shared resource.
3. Deadweight Loss: The loss of economic efficiency
that can occur when equilibrium for a good or service is not achieved.
4. Gini Coefficient: A measure of income inequality
within a population.
5. Hyperinflation: Extremely rapid or
out-of-control inflation.
6. Monetary Neutrality: The idea that changes in the
money supply have no real effects on the economy in the long run, only on
nominal variables.
7. Liquidity Trap: A situation where monetary
policy becomes ineffective because nominal interest rates are close to zero,
limiting the ability to stimulate the economy.
8. Phillips Curve: A theory suggesting an inverse
relationship between unemployment and inflation.
9. Malthusian Trap: The idea that population growth
tends to outstrip food production, leading to periods of famine and poverty.
10. Laffer Curve: A representation of the
relationship between tax rates and tax revenue.
11. Okun's Law: The relationship between unemployment and
GDP growth, where a 1% increase in unemployment is associated with a 2% fall in
GDP.
No comments:
Post a Comment