Econ Basics
The study of how society manages its scarce resources
Economics
Its the law! When the price of something goes up, people buy less of it. When the price goes down, people buy more
Law of demand
This is the total market value of all goods and services produced within a country's borders in a given year. Not as repulsive as the name suggests
gross domestic product (GDP)
When the economy slows down, the government can try to jump-start it by spending more money or cutting taxes with this financial aid. Fights in Congress over this type of policy date back to the days of Alexander Hamilton.
Fiscal Policy
This is a tax placed on imported goods, designed to make foreign products more expensive so that domestic consumers will buy domestic products instead. Trading partners tend to respond by doing the same thing back. "Anyone, anyone..."
Tariffs
Every economic decision you have ever made comes down to this fundamental problem: As the Rolling Stones say it: "You can't always get what you want" 🎵
Scarcity
A single firm controls the entire market for a product, faces no competition, and can charge basically whatever it wants. This market structure has a board game and a bad reputation.
Monopoly
The economy is at low tide during these periods of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. 2008 is one recent example
Recession
The central bank of the United States has this fancy name
The Federal Reserve
This is a small piece of ownership in a company, not to be confused with something you use to make soup
What is a stock?
Analysis that involves comparing marginal benefits and marginal costs. It is the reason the fourth slice of pizza is never as good as the first.
Marginal Analysis
This is the price at which the amount of a good that sellers want to sell is exactly equal to the amount buyers want to buy. The market reaches it automatically, where economists find balence.
Equilibrium Price
This occurs when the general price level across an economy keeps rising over time, meaning the same amount of money buys you less than it used to. Your grandparents will tell you about when movies cost a nickel.
Inflation
The Federal Reserve controls this tool, adjusting it to either encourage borrowing and spending or slow the economy down. When it is near zero, the Fed is basically begging people to take out loans.
Interest rate (or federal funds rate)
A government-issued IOU with interest, safer than a stock, but not as exciting.
What is a bond?
When you chose to come to school today instead of staying home, the value of whatever you gave up by not staying home is called this. Economists insist on reminding you that nothing is ever actually free.
Opportunity cost
Think outside the box for this term that describes a cost or benefit that falls on people who had no say in the transaction, like your neighbor's loud music or a factory's pollution downstream.
Externality
This is the recurring pattern of expansion, peak, contraction, and trough that economies go through over time. It sounds more orderly and predictable than it actually is.
Business Cycle
The Federal Reserve puts the squeeze on inflation by increasing interest rates to reduce the money supply
Contractionary Monetary Policy
This is the term for the process by which interest earns interest on top of itself over time, which Einstein may or may not have called the eighth wonder of the world but which your retirement account definitely appreciates.
Compound interest
A phrase coined by Adam Smith to describe the process that turns self-directed gain into social and economic benefits for all
Invisible Hand
Herd immunity from vaccines are this type of good which non-excludable and non-rivalrous, meaning you cannot stop people from using it and one person's use does not reduce anyone else's, which is why the private market tends to underproduce it and the government usually has to step in.
Public Good
When there is persistent high inflation combined with high unemployment and stagnant demand in a country's economy.
Stagflation
This economic theory, associated with some guy named John Maynard, argues that during a recession the government should increase spending to make up for the drop in private demand, even if it means running a deficit
Keynesian economics
This is the economic principle that says countries should specialize in producing whatever they are relatively better at and trade for everything else, even if one country is better at producing everything.
Comparative Advantage