Chapter 1: First Principles - Microeconomics

Vocabulary flashcards covering core concepts and key terms from Chapter 1: First Principles in Microeconomics.

Microeconomics

The study of how individuals make decisions and how those decisions interact.

Individual Choice

The decision by an individual of what to do, which necessarily involves a decision of what not to do.

Resource

Anything that can be used to produce something else, such as land, labour, physical capital, and time.

Scarce Resource

A resource whose available quantity is not large enough to satisfy all productive uses.

Opportunity Cost

The real cost of a decision, defined as the value of what you must give up in order to get it.

Trade-off

A comparison of the benefits and the costs of doing something.

Marginal Decision

A decision made at the margin by comparing the costs and benefits of doing a little bit more of an activity versus doing a little bit less.

Marginal Analysis

The study of marginal decisions, which involve comparing the costs and benefits of incremental changes.

Incentive

A reward offered to people that leads them to change their behaviour by exploiting opportunities to make themselves better off.

Interaction of Choices

An economic feature where individual choices affect one another, meaning the end result may be different from what anyone intends.

Trade

An arrangement in a market economy where individuals provide goods and services to others and receive goods and services in return.

Gains from Trade

The principle that people can get more of what they want through trade than if they tried to be self-sufficient.

Specialization

A division of labour in which each person concentrates on the specific task that he or she is good at.

Equilibrium

An economic situation in which no individual would be better off taking a different action.

Efficiency

A state of the economy in which it is impossible to make someone better off without making others worse off.

Equity

A measure of fairness in which everyone gets his or her fair share.

Market Failure

A situation in which the individual pursuit of self-interest in a market makes society worse off, leading to an inefficient outcome.

Externalities

Side effects of individual actions that are not taken into account by the market.