Introduction to Economics - Chapter 1 Flashcards

Vocabulary flashcards covering core economic principles, trade-offs, opportunity cost, marginal decision-making, incentives, trade advantages, and market systems from the lecture.

Economics (Etymology)

Originates from a Greek word meaning "the one who manages the household."

Scarce Resources

Limited resources, such as time and money, that force individuals and societies to make choices about allocation.

Efficiency

A state where society gets the maximum benefit from its scarce resources, focusing on maximizing the overall size of the economic pie or revenue.

Equality

A state where economic prosperity is distributed uniformly or evenly among all members of society.

Opportunity Cost

Whatever must be given up or sacrificed to obtain a specific item or pursue an action over an alternative.

Rational People

Individuals who systematically and purposefully do the best they can to achieve their objectives.

Marginal

A term used by economists to describe additional, extra, or incremental adjustments to a plan of action.

Marginal Benefit

The additional or extra benefit received from taking a specific action.

Marginal Cost

The additional or extra cost incurred from taking a specific action.

Rational Decision Rule

The rule stating that a rational person will take an action if and only if the marginal benefit is greater than the marginal cost ($MB > MC$).

Revenue

The total amount of money generated from selling goods, calculated as price times quantity ($\text{Revenue} = P \times Q$).

Profit

The net revenue remaining after subtracting total production costs from total revenue.

Incentive

Something that induces or motivates a person to act, which rational people evaluate by comparing marginal costs and benefits.

Quantity Demanded ($QD$)

The total amount of a good or service that consumers are willing and able to purchase at a given price.

Bar Overhead Notation (e.g., $\bar{I}$)

A mathematical bar placed over a variable denoting that the value remains constant with no change.

There Is No Such Thing as a Free Lunch

The economic concept that even when a good or service is provided without monetary charge, there is always an opportunity cost, such as sacrificed time.

Absolute Advantage

The ability of a country or entity to produce more of a good or service than competitors using the same amount of resources.

Comparative Advantage

The ability of a country or entity to produce a good at a lower opportunity cost than another producer, providing the basis for beneficial trade.

Market Economy

An economic system that allocates resources through the decentralized decisions of many firms and households interacting in the marketplace.

Invisible Hand

The concept introduced by Adam Smith in his book, The Waste of Nations, asserting that individuals acting in self-interest inadvertently benefit society as a whole without needing government intervention.