Economics flashcards
Browse the Economics collection: free, mobile-first spaced-repetition decks. Sign in to start reviewing at your own pace.
34 decks
- Welcome to Economics! (Economics)Recall cards introducing economics. The core problem of scarcity: economics as the study of decision-making under scarcity, limited resources, and time as the ultimate scarce resource. The division of labor (Adam Smith, The Wealth of Nations, 1776; the pin factory), and why it raises production: comparative advantage, faster and higher-quality specialists, and economies of scale; specialization requires trade. The two branches of the field: microeconomics (individual agents) versus macroeconomics (the economy as a whole), the goals of macroeconomic policy, and monetary versus fiscal policy. How economists think: Keynes on economics as a method, theories versus models, and the circular flow diagram of households and firms in the goods-and-services and labor markets. How economies are organized: traditional, command, and market systems, private enterprise, globalization, exports and imports, GDP, and the rising ratio of exports to GDP.
- Choice in a World of Scarcity (Economics)Recall cards on how scarcity forces choice. The budget constraint: the combinations of two goods a consumer can afford (the Alphonso burgers-and-bus-tickets example), opportunity cost as the next best alternative given up, the slope of the budget line, marginal analysis, the law of diminishing marginal utility, utility maximization, and why sunk costs should not affect current decisions. The production possibilities frontier (PPF): attainable versus unattainable points, productive and allocative efficiency, the law of increasing opportunity cost, why the PPF bows outward, and comparative advantage. Confronting objections to the economic approach: positive versus normative statements, the self-interest assumption and Adam Smith's caveat, and economics as a descriptive rather than prescriptive analysis of behavior.
- Demand and Supply (Economics)Recall cards on how markets set prices. Demand and the law of demand (price and quantity demanded move inversely), supply and the law of supply (they move together), demand and supply schedules and curves, and market equilibrium where the two curves cross. Surpluses (excess supply above equilibrium) and shortages (excess demand below equilibrium) and how prices adjust back. Movements along a curve versus shifts of the whole curve: normal and inferior goods, substitutes and complements, ceteris paribus, and the factors that shift demand and supply. The four-step process for analyzing how an event changes equilibrium, and the outcomes of demand and supply shifts. Price controls: binding price ceilings and floors, with rent control and the minimum wage as examples. Efficiency: consumer surplus, producer surplus, social (total) surplus, and the deadweight loss created when a market produces at an inefficient quantity.
- Labor and Financial Markets (Economics)Recall cards applying demand and supply to two special markets. In the labor market employers demand labor, workers supply it, and the wage is the price: the law of demand and supply, the equilibrium wage, and how a wage above or below equilibrium creates unemployment or a labor shortage. Derived demand and the factors that shift labor demand and labor supply. The minimum wage as a price floor, the living wage, and when a minimum wage is non-binding. In the financial market savers supply financial capital, borrowers demand it, and the interest rate is the price: the rate of return, equilibrium, excess supply and excess demand, the factors that shift the supply of financial capital, and usury laws as a price ceiling. Finally, the market system as an information mechanism: how prices collect and transmit information about scarcity and profitability so that consumers and producers respond appropriately without any central authority and without knowing the cause, and how price controls distort that information.
- Elasticity (Economics)Recall cards on elasticity, the measure of how responsive quantity is to price. Price elasticity of demand and of supply as ratios of percentage changes, why the demand elasticity is negative but reported as an absolute value, and the elastic (greater than 1), unitary (equal to 1), and inelastic (less than 1) ranges. The midpoint method and why it gives the same value whether price rises or falls, and how elasticity differs from slope. The polar cases: perfectly elastic (a horizontal line), perfectly inelastic (a vertical line), and constant unitary elasticity. How elasticity determines who bears a tax and how a price change moves total revenue when demand is elastic, inelastic, or unitary, plus the short-run versus long-run difference. Finally, elasticity beyond price: income elasticity and normal versus inferior goods, cross-price elasticity and substitutes versus complements, and the wage and savings elasticities.
- Consumer Choices (Economics)Recall cards on how consumers choose. The utility framework: total utility and marginal utility, marginal utility per dollar, and the utility-maximizing rule that sets the marginal utility per dollar equal across all goods (MU1/P1 = MU2/P2). How the budget constraint shifts when income changes and rotates when a price changes, and how a price change splits into a substitution effect and an income effect that together trace out the demand curve. Finally, behavioral economics: loss aversion and the Kahneman and Tversky finding, self-control problems, mental accounting, and how default enrollment shapes retirement saving.
- Production, Costs, and Industry Structure (Economics)Recall cards on how firms produce and what it costs. Explicit versus implicit costs, and accounting profit versus economic profit. The short-run production function: fixed and variable inputs, marginal product, and the law of diminishing marginal product. Short-run costs: fixed, variable, total, and marginal cost, the average cost measures, and the shapes of the U-shaped average total cost curve and the marginal cost curve that cuts it at its minimum. Then the long run, where all inputs vary: the long-run average cost curve built from short-run curves, and how economies of scale, constant returns, and diseconomies of scale, read against market demand, shape an industry's structure.
- Perfect Competition (Economics)Recall cards on the perfectly competitive market: many firms selling identical products, full information, and free entry and exit, with each firm a price taker facing a perfectly elastic demand curve. How a competitive firm chooses output where marginal revenue equals marginal cost (and price equals marginal cost), when it earns a profit, breaks even, or takes a loss against average total cost, and the shutdown point at minimum average variable cost that makes its marginal cost curve its short-run supply curve. Then the long run: how entry and exit drive economic profits to zero at minimum average total cost, the constant, increasing, and decreasing cost industries behind the long-run supply curve, and why the outcome is both productively and allocatively efficient.
- Monopoly (Economics)Recall cards on monopoly: a single firm that is the only seller of a product with no close substitutes. How monopolies form and persist behind barriers to entry, natural monopolies from large economies of scale, legal monopolies and deregulation, control of a scarce resource, and the intellectual-property barriers of patents, trademarks, copyrights, and trade secrets, plus predatory pricing. Then how a profit-maximizing monopoly chooses output and price on its downward-sloping market demand curve: why marginal revenue is less than price and its curve lies below demand, finding output where marginal revenue equals marginal cost, reading price off the demand curve, and why the result is a lower quantity and a higher price than perfect competition.
- Monopolistic Competition and Oligopoly (Economics)Recall cards on the two intermediate market structures between perfect competition and monopoly. Monopolistic competition: many firms competing with differentiated products, how differentiation by physical features, location, intangibles, and perception gives each firm a mini-monopoly, short-run profit or loss versus long-run zero economic profit through entry and exit, allocative and productive inefficiency with excess capacity, the offsetting benefit of product variety, and the role of advertising. Oligopoly: a few large firms with mutual interdependence, barriers to entry and economies of scale, collusion, cartels, and tacit collusion, the prisoner's dilemma and dominant strategies, the kinked demand curve, and the lysine price-fixing case.
- Monopoly and Antitrust Policy (Economics)Recall cards on how governments limit market power. Corporate mergers: vertical, conglomerate, and horizontal combinations, acquisitions, FTC notification thresholds, and the Sherman, Clayton, and Celler-Kefauver antitrust laws. Measuring concentration: the four-firm concentration ratio and the Herfindahl-Hirschman Index (HHI), and why regulators now favor detailed market analysis. Regulating anticompetitive behavior: price fixing, bid rigging, market division, restrictive practices such as exclusive dealing, tie-in sales, bundling, and predatory pricing, with the vitamin and Microsoft cases. Regulating natural monopolies: cost-plus versus price cap regulation and marginal-cost pricing losses. The great deregulation experiment: regulatory capture and the airline case.
- Environmental Protection and Negative Externalities (Economics)Recall cards on the economics of pollution and environmental policy. Externalities: positive and negative spillovers, social versus private costs, and why a negative externality causes market failure and shifts the supply curve. Command-and-control regulation: allowable-quantity and technology mandates, their inflexibility and weak incentives, and the EPA, Clean Air Act, and Clean Water Act. Market-oriented tools: pollution charges, marketable permits, cap-and-trade, and Coase's property-rights insight. Benefits and costs: the marginal benefit and marginal cost of pollution reduction and the economically optimal level. International issues: cross-border externalities, global warming, and biodiversity. The output-versus-environment production possibilities frontier tradeoff.
- Positive Externalities and Public Goods (Economics)Recall cards on positive externalities, innovation, and public goods. Why the private sector underinvests in innovation: technology's positive spillovers, private versus social benefits, the private versus social rate of return, and how easy copying and captured benefits lead to underinvestment in research and development. How governments encourage innovation: intellectual property rights, direct R&D spending, R&D tax credits, and cooperative research. Public goods: nonexcludability and nonrivalry, private goods, national defense, the free rider problem, why markets underprovide public goods, and how taxes and alternative funding address it.
- Labor Markets and Income (Economics)Recall cards on labor markets and income. The theory of labor markets: marginal productivity, the value of the marginal product, marginal revenue product, and how wages and employment are set in competition. Imperfect competition: monopsony, the marginal cost of labor, and its effect on wages and jobs. Supply-side market power: labor unions, collective bargaining, and their wage and employment effects. Bilateral monopoly. Employment discrimination: labor market discrimination, Gary Becker's argument, U.S. wage gaps by race and gender, and the Equal Pay, Civil Rights, and Age Discrimination in Employment Acts. Immigration and its effects on wages, the economy, and taxes.
- Poverty and Economic Inequality (Economics)Recall cards on poverty and economic inequality. Drawing the poverty line: how poverty is measured, Orshansky's original method, and U.S. poverty rates by group. The poverty trap: how declining benefits blunt the incentive to work. The safety net: TANF, the earned income tax credit, SNAP, Medicaid, WIC, and Supplemental Security Income. Measuring and explaining income inequality: quintiles, the Lorenz curve, household structure, education, and winner-take-all labor markets. Government policies to reduce inequality: redistribution, progressive taxes, the estate tax, ladders of opportunity, and the equality-output tradeoff.
- Information, Risk, and Insurance (Economics)Recall cards on imperfect information, asymmetric information, and insurance. The problem of imperfect information: thin markets, price as a quality signal, the lemon problem, and the mechanisms that reduce it (guarantees, warranties, reputation, occupational licenses, credentials, probationary periods, cosigners, collateral, and credit checks). Insurance and imperfect information: risk pooling, premiums, the fundamental law of insurance, deductibles, copayments, and coinsurance, plus adverse selection, moral hazard, actuarially fair pricing, risk classification, mandatory coverage, and health maintenance organizations.
- Financial Markets (Economics)Recall cards on how firms raise financial capital, how households supply it, and how to accumulate personal wealth. Raising capital: angel investors, venture capital, reinvested profits, bank borrowing, bonds, and stock, plus IPOs, dividends, capital gains, private versus public companies, and the tradeoffs of borrowing versus issuing stock. Supplying capital: banks as intermediaries, bond face value, coupon rate, maturity, and yield, default and interest rate risk, mutual and index funds, diversification, and the risk-return tradeoff. Building wealth: the random walk of stock prices, the difficulty of beating the market, compound interest, and the payoff of education and early saving.
- Public Economy (Economics)Recall cards on public choice: how voters, special interests, and democratic institutions shape economic policy. Voter participation: rational ignorance, U.S. versus international turnout, compulsory voting, the cost of election campaigns relative to GDP, and who is more likely to vote. Special interest politics: well-organized groups with concentrated benefits and diffuse costs, lobbying, pork-barrel spending, and logrolling. Flaws in majority rule: the voting cycle and agenda order, median voter theory and its limits, the absence of market discipline on government agencies, and weighing the strengths and weaknesses of markets against those of government.
- The Macroeconomic Perspective (Economics)Recall cards on measuring the macroeconomy. Gross domestic product: its definition, the equivalent spending and income sides, the expenditure formula GDP = C + I + G + (X - M) and its components, final versus intermediate goods, durable and nondurable goods and services, and GNP and NNP. Nominal versus real values: the GDP deflator, the base year, and converting nominal GDP to real GDP. Tracking real GDP: recession, depression, peak, trough, the business cycle, expansion, annualized growth, and the link to employment. Comparing GDP across countries with common currencies, purchasing power parity, and GDP per capita. Finally, what GDP does and does not capture about well-being, leisure, the environment, health, non-market production, inequality, and the standard of living.
- Economic Growth (Economics)Recall cards on long-run economic growth. The relatively recent arrival of sustained growth: the roughly 2 percent per year rise in GDP per capita since the Industrial Revolution, and the institutions behind it, property rights, contractual rights, and the rule of law. Labor productivity and its determinants: human capital, technological change (invention plus innovation), economies of scale, the aggregate production function, and how growth compounds. The components of growth: capital deepening in physical and human capital, and the central role of technology in growth-accounting studies. Finally, economic convergence: diminishing marginal returns to capital, the advantages of backwardness, the arguments against guaranteed convergence, and why convergence is slow.
- Unemployment (Economics)Recall cards on unemployment. How economists define and measure it: employed versus unemployed versus out of the labor force, the unemployment rate, the labor force participation rate, discouraged and underemployed workers, and the Current Population Survey. Patterns of unemployment across the business cycle and across age, education, race, and countries. Short-run causes: cyclical unemployment and the theories of sticky wages (implicit contracts, efficiency wages, the adverse selection of wage cuts, the insider-outsider model, and relative wage coordination). Long-run causes: the natural rate of unemployment, frictional and structural unemployment, full employment, and the factors that raise or lower the natural rate.
- Inflation (Economics)Recall cards on inflation. Tracking it: the price level, a basket of goods and services, the inflation rate, price indexes, index numbers, and base years. Measuring the cost of living: the Consumer Price Index and how the Bureau of Labor Statistics builds it, substitution and quality bias, core inflation, and other indexes (Producer Price Index, GDP deflator, Employment Cost Index, International Price Index). How the United States and other countries have experienced inflation, deflation, and hyperinflation. The confusion over inflation: who wins and loses when it is unexpected, blurred price signals, and interactions with taxes. Indexing and its limits: cost-of-living adjustments, adjustable-rate mortgages, bracket creep, and indexed bonds.
- The International Trade and Capital Flows (Economics)Recall cards on international trade and capital flows. Measuring trade balances: the balance of trade, the merchandise trade balance, the current account balance, unilateral transfers, traded services, and investment income. Trade balances in context, scaled to GDP. Trade balances and flows of financial capital: net borrowing and lending, and the current and financial accounts of the balance of payments. The national saving and investment identity, S + (M - X) = I + (G - T), and the twin deficits. The pros and cons of trade deficits and surpluses, productive investment versus consumption, and capital flight. The difference between a country's level of trade and its trade balance.
- The Aggregate Demand/Aggregate Supply Model (Economics)Recall cards on the aggregate demand/aggregate supply (AD/AS) model. Macroeconomic perspectives on demand and supply: Say's law, Keynes' law, and the neoclassical versus Keynesian emphasis. Building the model: aggregate supply and the short-run and long-run AS curves, potential and full-employment GDP, aggregate demand and its four components, the wealth, interest rate, and foreign price effects, and equilibrium. Shifts in aggregate supply from productivity and input prices, and shifts in aggregate demand from confidence, government spending, and taxes. How the model incorporates growth, cyclical unemployment, demand-pull and cost-push inflation, and stagflation. The Keynesian, intermediate, and neoclassical zones of the short-run aggregate supply curve.
- The Keynesian Perspective (Economics)Recall cards on the Keynesian perspective in macroeconomics. Aggregate demand in Keynesian analysis: consumption, investment, government spending, and net exports, and what determines each. The two building blocks of Keynesian analysis: aggregate demand determines output and employment, and wages and prices are sticky (the coordination argument, menu costs, macroeconomic externality, recessionary and inflationary gaps, and the expenditure multiplier). The Phillips curve and the short-run tradeoff between inflation and unemployment, why it shifts, and expansionary versus contractionary fiscal policy. The Keynesian perspective on market forces, its policy prescription, and its limitations.
- The Neoclassical Perspective (Economics)Recall cards on the neoclassical perspective in macroeconomics. The two building blocks of neoclassical analysis: in the long run potential GDP determines real output regardless of aggregate demand, and wages and prices, sticky in the short run, are flexible over time so the economy adjusts back toward potential GDP. Rational versus adaptive expectations and how fast the economy returns to potential. Policy implications: a vertical long-run aggregate supply curve and a vertical long-run Phillips curve (no permanent inflation-unemployment tradeoff), a focus on the natural rate of unemployment and long-term productivity growth. Balancing the Keynesian short-run model against the neoclassical long-run model, and what each school explains best.
- Money and Banking (Economics)Recall cards on money and banking. The four functions that define money: medium of exchange, store of value, unit of account, and standard of deferred payment, plus barter and the double coincidence of wants, and commodity, commodity-backed, and fiat money. Measuring the money supply: the narrow M1 (currency and checking accounts) and the broader M2 (M1 plus savings deposits, money market funds, and certificates of deposit), and why credit cards are not money. The role of banks as depository institutions: assets, liabilities, net worth, bank capital, reserves, the T-account, and the asset-liability time mismatch. How fractional reserve banking creates money through the reserve requirement and the money multiplier.
- Monetary Policy and Bank Regulation (Economics)Recall cards on monetary policy and bank regulation. Central banks and the Federal Reserve: its three functions, its semi-decentralized structure, the Board of Governors, and the 12 regional banks. Bank regulation: bank supervision, bank runs, deposit insurance and the FDIC, and the lender of last resort. The three tools of monetary policy: open market operations, the reserve requirement, and the discount rate, plus the federal funds rate and quantitative easing. Expansionary (loose) versus contractionary (tight) policy, how each shifts interest rates and aggregate demand, and why policy should be countercyclical. Pitfalls: the quantity equation of money, velocity, long and variable lags, excess reserves, and inflation targeting.
- Exchange Rates and International Capital Flows (Economics)Recall cards on exchange rates and international capital flows. The foreign exchange market: where currencies are traded, its size, and what creates the demand for and supply of a currency. Appreciation and depreciation, hedging, arbitrage, foreign direct investment, and portfolio investment. What shifts demand and supply in currency markets: expectations, speculation, relative interest rates, relative inflation, and purchasing power parity in the long run. The macroeconomic effects of exchange rates on exports, imports, aggregate demand, firms, and banks, plus the dangers of large international capital flows. Exchange rate policies: floating rates, soft pegs, hard pegs, merged currencies, and dollarization, and the trade-off between rate stability and an independent monetary policy.
- Government Budgets and Fiscal Policy (Economics)Recall cards on government budgets and fiscal policy. Federal spending: its size relative to GDP, its largest categories, and how education is funded mainly at the state and local level. Taxation: the individual income tax, payroll tax, corporate income tax, excise tax, and estate and gift tax, and the difference between progressive, proportional, and regressive taxes. Budget deficits, surpluses, balanced budgets, the national debt, and how they differ. Using expansionary and contractionary fiscal policy to shift aggregate demand and fight recession, unemployment, and inflation. Automatic stabilizers versus discretionary fiscal policy, the standardized employment budget, the recognition, legislative, and implementation lags, crowding out, and the debate over a balanced-budget amendment.
- The Impacts of Government Borrowing (Economics)Recall cards on the impacts of government borrowing. How a budget deficit forces an offsetting change through the national saving and investment identity, either lower private investment, higher private saving, or a larger trade deficit, while a budget surplus supplies financial capital. How fiscal policy affects the trade balance through aggregate demand, interest rates, and the exchange rate, and why budget and trade deficits are called twin deficits or, more loosely, cousins. Ricardian equivalence and the partial offset of government borrowing by private saving. How sustained deficits crowd out private investment and slow growth, and how governments can offset this by borrowing for public investment in physical capital, human capital, and research and development.
- Macroeconomic Policy around the World (Economics)Recall cards on macroeconomic policy across countries. How low-, middle-, and high-income countries are defined by per capita income and how unevenly world population and GDP are distributed among them. What raises living standards, the rule of 72, the East Asian Tigers, converging economies, the growth consensus, and the barriers that keep the poorest countries poor. Why unemployment differs across high-income economies and how it appears in the informal economies of low-income countries. Why high inflation arises from financing deficits by printing money and how high-income economies keep it low. And how a country can guard against sudden reversals of financial capital while still gaining from the funds and expertise that inflows bring.
- International Trade (Economics)Recall cards on international trade. What absolute and comparative advantage mean, why a country's comparative advantage lies where its opportunity cost is lowest, and how specialization raises total world output. Why even a country with an absolute advantage in every good still gains from trade, and why trade is mutually beneficial only within the range of the two countries' opportunity costs. Intra-industry trade between similar economies, value chains and splitting them across locations, and how economies of scale coexist with variety. And the benefits of lowering trade barriers: tariffs, the World Trade Organization, the Doha Round, and who gains most from freer trade.
- Globalization and Protectionism (Economics)Recall cards on globalization and protectionism. What protectionism is and its three tools (tariffs, import quotas, and nontariff barriers), why it acts as an indirect subsidy from consumers to producers, and why it lowers total social surplus. How trade shifts rather than destroys jobs, its effects on wages and working conditions, and the high cost per job saved by trade barriers. The arguments for restricting imports, infant industry, anti-dumping, the environmental race to the bottom, and national interest, and why economists find most of them weak. How governments enact trade policy globally (GATT and the WTO), regionally (free trade agreements, common markets, and economic unions), and nationally. And the tradeoffs of trade policy: trade as a disruptive innovation whose average gains are best paired with worker retraining rather than blocked.