Gregory Mankiw's Ten Principles of Economics

Vocabulary flashcards covering the Ten Principles of Economics as outlined by Gregory Mankiw, including core terms and definitions from the lecture notes.

Efficiency

The property of society getting the maximum benefits from its scarce resources.

Equity

The property of distributing economic prosperity fairly among the members of society.

"Guns and butter"

A classic example of a trade-off where the more a society spends on national defense (guns) to protect borders, the less it can spend on consumer goods (butter) to raise the standard of living.

Opportunity cost

Whatever must be given up in order to obtain some item, or the value of the next best alternative foregone.

Rational

Systematically and purposefully doing the best you can to achieve your objectives.

Incentive

Something that induces a person to act by offering rewards or punishments to people who change their behavior.

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.

Adam Smith’s Invisible Hand

A concept from his $1776$ work suggesting that although individuals are motivated by self-interest, they are guided by an invisible force to promote society’s economic well-being.

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, such as pollution.

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 hour of a worker’s time.

Inflation

A sustained increase in the overall level of prices in the economy, such as in the United States during the $1970\text{s}$.

Business cycle

Fluctuations in economic activity, such as employment and production.

Monetary Injection

The act of adding money into the economy, which economists believe has the short-run effect of lower unemployment and higher prices.