The study of economics helps individuals understand society and the world around them. All of the choices we make, the products we buy, and the money we receive plays a detrimental part in the economic growth of our country. Without further ado, here are some important definitions to think like an economist! Economics: The study of scarcity and how the production and demand of goods and services contribute to economic growth individually and collectively. The study of economics is divided into two parts, Microeconomics, which focuses on individual choice with the concern of single factors, and Macroeconomics which looks at the economy as a whole and deals with decision-making with factors such as interest rates and productivity.  Inflation Inflation is the continual rise in the price level of goods and services and purchasing power declines over time. Essentially, wheneach unit of currency buys less than in previous periods. To calculate inflation, we use the Consumer Price Index (CPI). The CPI tracks the prices of common goods and services, then compare it over time.  Contrastingly, deflation occurs when prices decline and purchasing power increases. Inflation can be caused by excess printing of currency, demand-pull, cost-push, and structural inflation.  Printing excess money causes more money chasing the same amount of goods resulting in no real growth, only nominal growth. Demand-pull inflation occurs when there is an unusual increase of demand, this can happen when there is a change in income and a rise in the stock market. Cost-push inflation (Stagflation) occurs when resources that suppliers use are in short supply. For example, shortages of labour, land and oil. Structural inflation occurs when costs increase in one sector/area which increases the prices of other goods. An example is the increase in oil prices. Oil is used for the transportation of every good, therefore when the price of oil increases, everything will increase.  GDP: GDP stands for Gross Domestic Product. This is the market value of all final goods and services produced within a country. GDP is a monetary measure of a country’s production over time, usually calculated annually. Another term for GDP is GDP per capita. Essentially, it is the GDP divided by the number of citizens in a country. This measures the income earned per person and determines the prosperity of the nation’s growth per person. Another related term is Gross National product which is the market value of all final goods and services produced by citizens of a country.  Real GDP is the actual amount of GDP in a year that is adjusted for inflation, nominal GDP is not adjusted. For example, in the first year apples cost $0.50 cents a pound, and we have a GDP of $1000. The second year the apples cost $0.55 a pound with a GDP of $1200. $1200 would be our nominal GDP as it isn’t adjusted for inflation, the real GDP would be $1091 since year 2’s prices are adjusted to the price in year one.  A way to grasp the concept of GDP is by comparing it to stock and flow. Stock is the accumulated activity and flow is a year's worth of activity that resets annually. Thus we can think of GDP like flow. GDP only includes goods that flow out of one year’s production as opposed to it being stockpiled.  Specialization: Specialization is the process where a company or organization narrows down what they are good at to maximize efficiency. Specialization enables them to create an advantage in the competitiveness of the economy. This can be conducted through individuals, companies or countries. For example, a worker can specialize in a specific task and countries can specialize in particular goods. Economic specialization can help organizations appeal to greater audiences. For example, when a consumer is in search of buying a particular good, they would rather buy it from a company that established expertise within the respective field. Specialization also decreases the cost of production. When a company decides to produce a certain good, the output will be increased, resulting in charging their clients less. The small costs lead to more clients, so the company will result in more sales overall. An example of a company that sells one single product is Crocs!  Market Equilibrium: Market equilibrium is the state where supply and demand are equal in the market. When the market is at the equilibrium the price will not change unless there is a change in the supply or demand. If the price is above the equilibrium, that means there is a surplus of supply and less demand. In this situation, sellers tend to slow down the production of goods and lower the price. The lower the price, the more purchases are made by consumers which will lower the inventory. With these changes, the point will slowly reach back to the market equilibrium. If the price is below the equilibrium, there is high demand, but low supply. In this situation, the prices will go up. Eager buyers will continue to buy the goods or services, and some buyers just can’t afford them. Sellers will start to supply more of the goods and the market equilibrium will be normal and stabilized Trade; Pros and Cons: Trade is the exchange of goods and services between economic organizations. Trade optimally benefits both parties. For example, a country that specializes in oil, but lacks mattresses can trade with a country that specializes in mattresses and lacks oil. In free trade, consumers can purchase international goods at the same price as domestic goods. Since tariffs are sometimes placed on traded goods, a tariff will be added to the price to turn consumers away from buying it. Tariffs force consumers to buy more domestic goods which boosts GDP. Trade keeps an economy open, competitive and dynamic. Goods that a country is unable to produce can be obtained from trade with another party. With trade, countries are able to efficiently produce what they have the absolute advantage of. For example, Canada can specialize in maple syrup, and trade that for mangos from Brazil. Consumers are offered a variety of choices. Trade can lead to fierce competition, lower prices and innovation.  With these advantages, there come many cons. Trade can lead to undeveloped countries relying on developed countries. For example, it would not be efficient if a country had sole reliance on another country to provide food since many transportation factors come to play when trading. During the 6-day Suez Canal Crisis, 12% of global trade was blocked and held up $10 billion worth of cargo a day. This crisis led to the increase of prices for food making affordability an issue for many families. Along with this, trade can also lead to the loss of local jobs. International imports displace goods that otherwise would have been made by domestic workers.  Opportunity Cost: Opportunity cost is sacrifices and potential losses made in order to obtain something different or the next best alternative. When making a decision, the factors that come to play are the benefits and the costs. Although costs aren’t necessarily monetary, they can also be time and happiness etc. Opportunity costs are the desirable sacrifices made when making a decision.  Comparative Advantage: Comparative advantage occurs when a party can produce goods with a lower opportunity cost than another producer. Comparative advantage is measured in units of what you give up. This suggests that countries will engage in trade with one another, letting them be able to specialize. For example, for every hockey stick that Canada makes, the opportunity cost is 1.5 maple syrups. In Germany, every hockey stick sacrifices only 1 maple syrup, thus Germany has a comparative advantage.