Basic Principles of Individual Choice and Market Function

Vocabulary terms and definitions covering the four principles of individual choice, market questions, and the tenets of a functioning marketplace.

Scarcity

A condition where resources and opportunities are finite and limited, necessitating choices, illustrated by traffic congestion in Lagos, Nigeria.

Opportunity cost

The real cost of something, defined as what you must give up or forgo to obtain your choice.

Marginal decisions

Decisions about "how much" to do of an activity, involving trade-offs and marginal analysis.

Incentives

Opportunities that people usually take advantage of in order to make themselves better off.

Four basic market organization questions

1. What will be produced? 2. How will it be produced? 3. Who will produce it? 4. For whom will it be produced?

Trade-offs

The management of competing goals, specifically efficiency and equity, within different economic systems.

Pricing mechanism

A regulated or non-regulated medium used by markets for the allocation of scarce resources.

Land, labor, and capital

Resources that are allocated through pricing or practice to entities that will make for their most productive use.

Mixed marketplace coordination

A function of markets to serve as a medium to coordinate activities in response to private and public incentives signaling unlimited needs and wants.

Exploitable trade and exchange opportunities

Opportunities created by participants to maximize private and public gains and returns to society in a resource constrained environment.