Show Menu

Economics Cheat Sheet by

economics
economics     glossary

Topic 1: Introd­uction

positive analysis
descri­ptive, make a claim how the world is
normative analysis
prescr­iptive, make a claim how the world ought to be
compar­ative advantage
when comparing opport­unity costs of two producers, produce at lower cost than anyone else
opport­unity costs
What it costs someone to produce something is the opport­unity cost – the value of what is given up
trade-off
Best allocation of your resources in order to make better decisions.
incentive
Decision making may change, when involved costs and benefits change. People respond to incentives → motivation
model
Models are purposeful repres­ent­ations of (parts of) the economic system and simplify reality in order to improve our unders­tanding of it
macroe­con­omics
The study of produc­tion, employ­ment, prices and policies on a nationwide scale
microe­con­omics
the study of economics in an indivi­dual, group, or company level.
marginal change
describe small increm­ental adjust­ments to an existing plan of actions
produc­tivity
the amount of goods and services produced from each hour of a workers’ life

Topic 2: Demand and Supply

market
a group of buyers and sellers of a particular good or service.
compet­itive market
many buyers and seller­s.Each has a negligible impact on the market outcome.
price taker
As sellers (and buyers) have no influence on the prices they are said to be price takers.
law of demand
if, other things being equal (ceteris paribus), the price of a good rises, the quantity demanded falls and vice versa; the quantity demanded is negatively related to the price
normal good
a good for which – ceteris paribus – an increase in income leads to an increase in demand.
inferior good
is a good for which – ceteris paribus – an increase in income leads to a decrease in demand.
substi­tutes
two goods for which an increase in the price of one leads to an increase in the demand for the other
comple­ments
two goods for which an increase in the price of one leads to a decrease in the demand for the other.
law of supply
the quantity supplied of a good rises, if – ceteris paribus – the price of the good rises; the quantity supplied is positively related to the price supply schedule: the relati­onship between the price of a good and the quantity supplied shown in a table
individual supply curve
supply curve of an individual firm
individual demand curve
demand curve of an individual customer or firm
market supply curve
Sum of all individual supply curves horizo­ntally to obtain the market supply curve
market demand curve
sum of the individual demand curves horizo­ntally to obtain the market demand curve
market equili­brium
quantity supplied and demanded are equal. The price that balances supply and demand is called equili­brium price and the related quantity equili­brium quantity
price elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
price elasticity of supply
how much does the quantity supplied of a good respond to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price.
cross price elasticity of demand
a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded for the first good divided by the percentage change in the price of the second good
income elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in consumers’ income, computed as the percentage change in quantity demanded divided by the percentage change in income.
inelastic
Inelastic is an economic term referring to the static quantity of a good or service when its price changes. Inelastic means that when the price goes up, consumers’ buying habits stay about the same, and when the price goes down, consumers’ buying habits also remain unchan­ged.// Demand is said to be inelastic if the quantity demanded responds only slightly to changes in the price.
unit-e­lastic
a change in price will cause an equal propor­tional change in quantity demanded
elastic demand
Demand for a good is said to be elastic if the quantity demanded responds substa­ntially to changes in the price

Topic 3: Market and welfare

tax incidence
to the distri­bution of a tax burden. determined by the elasticity of the demand and the supply curve
welfare economics
the study of how the allocation of resources affects economic well-being
willin­gness to pay
the maximum amount that a buyer will pay for the good
consumer surplus
a buyer’s willin­gness to pay minus the amount the buyer actually pays. measures the benefits to buyers of partic­ipating in the market.
producer surplus
is the amount a seller is paid for a good minus the seller’s cost, and producer surpluses measure the benefit to sellers for partic­ipating in a market.
total surplus
the sum of consumer and producer surplus
deadweight loss
The fall in total surplus that results when a tax (or some other policy) distorts a market outcome
efficiency
If an allocation of resources maximizes total surplus we say that it is an efficient alloca­tion. markets (in equili­brium) produce the efficient quantity of a good.
equity
deal with the fair distri­bution of economic prosperity among members of society
 

Topic 4: Market Failure

regressive tax
high-i­ncome taxpayers pay a smaller fraction of their income than do low-income tax-payers
propor­tional tax
high-i­ncome and low-income taxpayers pay the same fraction of income
progre­ssive tax
high-i­ncome taxpayers pay a larger fraction of their income than do low-income tax-payers
negative extern­ality
arises when a person engages in an activity that (directly, not through market prices) negatively influences the well-being of another person without this person being compen­sated for the harm caused by the other person.
positive extern­ality
arises when a person engages in an activity that positively (directly, not through market prices) influences the well-being of another person without this their person having to pay for the benefits received caused by the first persons activity
public good
Neither excludable nor rival. People cannot be prevented from using it and one person’s use does not diminish other person’s ability of using such a good.
common resource
one person’s use of the common resource reduces other person’s ability to use it. not excludable but riva
benefit principle
People should pay taxes based on the benefits they receive from govern­mental services. This principle tries to make public goods similar to private goods. A person who uses lots of a public goods should pay more for it.
abilit­y-t­o-pay principle
Taxes should be levied on people according to how well these people can carry the burden. The idea behind is that all people should carry an equal burden when it comes to contri­buting to govern­mental expenses. (Because of what is conceived as a burden also depends on one’s own income / wealth the abilit­y-t­o-pay principle does not imply a lump-sum tax.)
lump-sum tax
where everybody pays the same amount

Topic 5: Cost of Production

opport­unity cost
he cost of something is what you have to give up to get it.
total cost
the market value of the inputs it uses for production of its outputs
profit
Profit = total revenue - total cost, in words it would be that the profit is the subtra­ction of total revenue with total costs
total revenue
the amount a firm receives for the sale of its output
production function
relati­onship between quantity of inputs used to make a good and the quantity of output of that good
fixed costs
Costs that do not vary with the quantity of output produced
variable costs
costs that vary with the quantity of output produced
marginal costs
the increase in total costs that arises from an extra unit of produc­tion. MC= ∆TC/∆Q
average fixed costs
fixed costs divided by the quantity of output
average variable costs
variable costs divided by the quantity of output
average total costs
total costs divided by the quantity of output. ATC(av­erage total costs) = TC(total costs)­/Q(­qua­ntity)
economies of scale
the property whereby long-run average total cost falls as the quantity of output increases
diseco­nomies of scale
the property whereby long-run average total cost rises as the quantity of output increases
constant returns to scale
the property whereby long-run average total cost stays the same as the quantity of output changes

Topic 6: Monopoly and Oligopoly

monopoly
A firm is a monopoly if it is the sole seller of a product and if this product has no close substi­tutes.
oligopoly
a market structure in which only a few sellers offer identical or similar products.
cartel
A group of firms that agree to cooperate in such a way that the output of a particular good is restri­cted, and prices are driven up
monopo­listic compet­ition
a market structure in which many firms sell products that are similar but not identical
price discri­min­ation
a business practice of selling the same good at different prices to different customers
Nash equili­brium
a situation in which economic actors intera­cting with each other choose their best strategy given the strategies all other actors have chosen
game theory
The study of strategic decision making by intera­cting indivi­duals or firms. Best outcome is hard to reach when not cooper­ating with each other
dominant strategy
When a firm chooses a strategy to get the most payoff, no matter what the other firm chooses, then it is called Dominant strategy

Topic 8: Macroe­con­omics

Frictional unempl­oyment
the time period between job when a worker is searching for, or transi­tioning from one job to another
structural unempl­oyment
Unempl­oyment caused by lack of demand for workers specific type of labour
labour produc­tivity
(=conn­ect­ivity) -the amount of output a typical worker turns out in an hour
potential GDP
the maximum sustai­nable amount that the economy will produce in the long run
cyclical unempl­oyment
unempl­oyment due to recession // the portion of unempl­oyment that is attrib­utable to a decline in the economy‘s total produc­tion.
GDP
is the value of all final goods and services produced within a country’s border in a specific period of time, usually a year // The market value of all goods and services newly produced in a country in one year
nominal GDP
Gross domestic product not adjusted for inflation
real GDP
Gross domestic product adjusted for inflation
 

Topic 9: Stimul­ating economics

Production function
Shows how much output an economy can produce depending on a varying input (e.g. labour) for given other factors (e.g. capital, techno­logy).
growth policy
Policies that increase the growth of the GDP (e.g. increasing the limit of work hours)
an economy’s human capital
Human capital is the knowledge, education, training etc, possessed by an individual or popula­tion.
research and develo­pment – R&D
activities aimed at inventing new products or processes, or improving existing ones
formal and informal instit­utions
Formal instit­utions are all the legal rules that restrict (or allow) economic and other type of develo­pment. This also includes rules and regula­tions to ensure legal compli­ance. Informal instit­utions are norms, and other “unwri­tten” rules that determine human behaviour.
marginal propensity to consume
is the ratio of changes in consum­ption relative to changes in disposable income that lead to the change in consum­ption. The MPC tells us how much more consumers will spend if disposable income increases by €1.

Topic 10: Unempl­oyment and/or inflation

Recess­ionary gap
The difference between real and potential GDP is called recess­ionary gap // A situation wherein the real GDP is lower than the potential GDP at the full employment level
inflat­ionary gap
The difference between real and potential GDP is called an inflat­ionary gap// the amount by which the actual GDP exceeds the full employment GDP
income­-ex­pen­diture diagram
With the support of the income­-ex­pen­diture diagram we are now able to derive the aggregate demand curve
stagfl­ation
The conseq­uence is stagfl­ation (inflation while the economy is growing slowly or is in a recess­ion). A period of stagfl­ation is part of the normal aftermath of a period of excessive aggregate demand.
recession
when two successive quarters or six months show a decrease in real GDP
depression
a severe recession
inflation
an increase in a currency supply relative to the number of people using it, resulting in rising prices of goods and services over time
deflation
a decrease in the general price level of goods and services

Topic 11: Money

Commodity money
This is an object in use as a medium of exchange but which also has a substa­ntial value in altern­ative (nonmo­netary) uses (e.g. cigare­ttes, cattle­,...)
fiat money
Fiat money is money that is decreed as such by the govern­ment. It is of little value by itself but maintains its value because people have faith that the issuer will stand behind the pieces of printed paper and limit their production
fractional reserve banking
is a system under which bankers keep as reserves only a fraction of the funds they hold on deposit
bank run
A bank run occurs if more people want their money back than what the bank holds as reserves. Then there is the risk that the bank collapses
central bank
An instit­ution that manages a country’s currency, alters money supply, and sets interest rates. It may also act as a lender of last resort to banks
expans­ion­ary­/co­ntr­act­ionary monetary policy
Monetary policy that expands (reduces) the monetary supply normally lowers (incre­ases) interest rates. // Government policies aimed at changing the money supply or interest rates in order to stimulate or slow down the economy.

Topic 12: Fiscal Policy

Automatic stabil­isers
is a feature of the economy that reduces its sensit­ivity to shocks such as sharp increases or decreases in spending
national debt
is the govern­ment’s total indebt­edness at a moment in time. It is the result of previous deficits (and surpluses)
budget surplus
an excess of tax revenue over government spending
budget deficit
is the amount by which the govern­ment’s expend­iture exceed its receipts during a specified period of time, usually a year
structural budget defici­t/s­urplus
To seek a better measure of deficit or surplus, the concept of structural budget deficit or surplus has been developed. This hypoth­etical measure replaces both spending and taxes in the actual budget by estimates of how much the government would be spending and receiving (given current tax rates and expend­iture rules) if the economy were operating at some fixed, high-e­mpl­oyment level.
Fiscal policy
he way a government adjusts its spending levels and tax rates to monitor and influence a nation's economy → adjusting government spending or taxes

Topic 14: Exchange rate

Currency apprec­iation
an increase in the value of a currency as measured by the amount of foreign currency it can buy
currency deprec­iation
a decrease in the value of a currency as measured by the amount of foreign currency it can buy
devalu­ation
(if a unit of a nation’s currency can buy fewer units of foreign currency)
revalu­ation
(if a unit of a nation’s currency can buy more units of foreign currency)
balance of payments deficit
The balance of payments deficit is the amount by which the quantity supplied of a country’s currency (per year) exceeds the quantity demanded
balance of payments surplus
The balance of payments surplus is the amount by which the quantity demanded of a country’s currency (per year) exceeds the quantity supplied.
foreign reserves
assets held by a central bank or other monetary authority, usually in various reserve curren­cies, mostly the United States dollar
fixed exchange rates
when a government sets its own exchange rate
flexible exchange rates
also known as floating exchange rates is when the equili­brium is set by supply and demand

Download the Economics Cheat Sheet

6 Pages
//media.cheatography.com/storage/thumb/evelana_economics.750.jpg

PDF (recommended)

Alternative Downloads

Share This Cheat Sheet!

 

Comments

No comments yet. Add yours below!

Add a Comment

Your Comment

Please enter your name.

    Please enter your email address

      Please enter your Comment.

          Related Cheat Sheets

          Comparative / Absolute Advantage Cheat Sheet
          Monopolies Cheat Sheet