Microeconomics Chapter 1: Economics - Foundations and Models

Vocabulary practice flashcards covering foundational concepts, economic models, efficiency types, and key terminology from Chapter 1 of Microeconomics (Hubbard & O'Brien).

Scarcity

A situation in which resources are limited relative to people's wants, meaning society cannot produce all the goods and services people wish to have.

Economics

The study of the choices people make to attain their goals, given their scarce resources.

Economic models

Simplified versions of reality used by economists to explain and predict real-world economic situations.

Market

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

Rationality (in Economics)

The behavioral assumption that consumers and firms use all available information, weigh benefits and costs, and behave consistently to achieve their goals.

Marginal benefit (MB)

The additional benefit associated with a small amount extra of some action.

Marginal cost (MC)

The additional cost associated with a small amount extra of some action.

Marginal analysis

An analytical approach that involves comparing marginal benefits and marginal costs to make optimal decisions.

Trade-off

The idea that, because of scarcity, producing more of one good or service means producing less of another good or service.

Opportunity cost

The highest-valued alternative that must be given up in order to engage in some activity.

Centrally planned economy

An economy in which the government decides how economic resources will be allocated.

Market economy

An economy in which the decisions of households and firms interacting in markets determine the allocation of economic resources.

Mixed economy

An economy in which most economic decisions result from the interaction of buyers and sellers in markets, but the government plays a significant role in allocating resources.

Productive efficiency

A state of the economy in which every good or service is produced at the lowest possible cost, driven by competition.

Allocative efficiency

A state of the economy where production is in accordance with consumer preferences, such that every good or service is produced up to the point where the marginal benefit of the last unit equals its marginal cost ($MB = MC$).

Voluntary exchange

A situation occurring in markets where both the buyer and the seller of a product are made better off by the transaction.

Equity

The fair distribution of economic benefits, often involved in a trade-off with economic efficiency.

Economic variable

Something measurable that can have different values, such as the number of people employed in manufacturing.

Positive analysis

Analysis concerned with what is, relying on factual and testable statements.

Normative analysis

Analysis concerned with what ought to be, involving value judgments about policy goals.

Tariff

A tax imposed by a government on imports to raise revenue or discourage foreign purchases.

Microeconomics

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

Macroeconomics

The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.

Technology (in Economics)

The processes a firm uses to produce goods and services.

Capital (in Economics)

Manufactured goods that are used to produce other goods and services.