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Fundamental Economic Concepts and Systems

Essential microeconomic and macroeconomic principles, market structures, fiscal and monetary policies, and trade dynamics.

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Scarcity and Opportunity Cost
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1
Scarcity and Opportunity Cost
Scarcity is the fundamental tension between unlimited wants and limited resources; opportunity cost is the value of the next best foregone alternative.
2
Law of Demand
The microeconomic principle that, ceteris paribus (all else being equal), quantity demanded varies inversely with price.
3
Price Elasticity of Demand (PED)
A metric measuring the responsiveness of the quantity demanded of a good to a percentage change in its market price.
4
Gross Domestic Product (GDP)
The total monetary value of all final goods and services produced within the geographic borders of a nation over a specified time period.
5
Nominal GDP vs. Real GDP
Nominal GDP measures output at current market prices; Real GDP is adjusted for inflation or deflation using constant base-year prices.
6
Inflation and Consumer Price Index (CPI)
Inflation is the persistent rise in general price levels; CPI tracks the price change of a weighted representative basket of consumer goods over time.
7
Stagflation
An adverse economic condition characterized by stagnant economic growth, high unemployment, and concurrent high inflation rates.
8
Fiscal Policy
Government intervention in the macroeconomy through taxation policies and public expenditure adjustments to influence aggregate demand.
9
Monetary Policy
A central bank's management of the money supply, benchmark interest rates, and banking liquidity to achieve economic stability and growth.
10
Fractional Reserve Banking
A commercial banking system where depository institutions are required to hold only a fraction of their deposit liabilities as liquid reserves.
11
Perfect Competition
A theoretical market structure with many buyers and sellers, homogeneous products, zero barriers to entry or exit, and price-taking firms.
12
Monopoly vs. Oligopoly
A monopoly features a single firm dominating the entire market; an oligopoly is dominated by a small number of large, interdependent firms.
13
Comparative Advantage
David Ricardo's principle that a country should specialize in producing goods it can manufacture at a lower opportunity cost than trading partners.
14
Balance of Payments (BoP)
An accounting record of all economic transactions between residents of a country and the rest of the world over a designated period.
15
Current Account vs. Capital Account
The Current Account records trade in goods, services, and net income; the Capital Account records international flows of financial assets and investments.
16
Tariff vs. Import Quota
A tariff is a direct excise tax imposed on imported foreign goods; an import quota is a quantitative limit on the physical volume of imports.
17
Gini Coefficient and Lorenz Curve
The Lorenz curve graphs cumulative wealth distribution; the Gini coefficient quantifies economic inequality on a scale from 0 (perfect equality) to 1 (total inequality).
18
Public Goods Characteristics
Commodities that are non-excludable (non-payers cannot be barred from consumption) and non-rivalrous (one user's consumption does not reduce availability).
19
Negative Externality
A cost imposed on an uninvolved third party as a consequence of an economic transaction (e.g., environmental industrial pollution).
20
The Phillips Curve
An economic concept positing a historical short-run inverse relationship between the rate of unemployment and the rate of wage or price inflation.
21
Purchasing Power Parity (PPP)
An economic theory comparing different countries' currencies through a 'basket of goods' approach to evaluate real purchasing power.
22
Laissez-Faire Capitalism
An economic philosophy advocating minimal governmental intervention, regulation, and taxation in commercial market operations.
23
Command Economy
An economic model where a centralized government authority determines production quotas, resource allocations, and distribution prices.
24
Deflationary Spiral
A damaging economic loop where falling prices cause consumers to delay purchases, leading to reduced production, lower wages, and further price declines.

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