Chapter 1 Flashcards
scarcity
the limited nature of society’s resources
economics
the study of how society manages its scarce resources
efficiency
the property of society getting the most it can from its scarce resources
equality
the property of distributing economic prosperity uniformly among the members of society
opportunity cost
whatever must be given up to obtain some item
rational people
people who systematically and purposefully do the best they can to achieve their objectives
marginal change
a small incremental adjustment to a plan of action
incentive
something that induces a person to act
market economy
an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
property rights
the ability of an individual to own and exercise control over scarce resources
market failure
a situation in which a market left on its own fails to allocate resources efficiently
externality
the impact of one person’s actions on the well being of a bystander
market power
the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices
productivity
the quantity of goods and services produced from each unit of labor input
inflation
an increase in the overall level of prices in the economy
business cycle
fluctuations in economic activity, such as employment and production
Ten principles of economics
1 - People face trade offs
2 - The cost of something is what you give up to get it
3 - Rational people think at the margin
4 - People respond to incentives
5 - Trade can make everyone better off
6 - Markets are usually a good way to organize economic activity
7 - Governments can sometimes improve market outcomes
8 - A country’s standard of living depends on its ability to produce goods and services
9 - Prices rise when the government prints too much money
10 - Society faces a short-run trade-off between inflation and unemployment
