Principles of Microeconomics, Chapter 1: Ten Principles of Economics

Vocabulary flashcards covering key terms and concepts from Chapter 1: Ten Principles of Economics in Mankiw's Principles of Microeconomics.

Scarcity

Resources are limited, meaning society cannot produce all the goods and services people want.

Economics

The study of how society manages its scarce resources.

Trade-off

To get one thing you want, you usually must give up another thing you want, representing a decision between competing goals.

Efficiency

Society is getting the most it can from its scarce resources, representing the size of the economic pie.

Equality

Distributing economic prosperity uniformly among the members of society, representing how evenly the economic pie is divided.

Opportunity Cost

Whatever must be given up to obtain some item after making a decision.

Rational People

Individuals who systematically and purposefully do the best they can to achieve their goals, given the available opportunities.

Marginal Change

A small incremental adjustment to a plan of action.

Incentive

Something that induces a person to act.

Market Economy

An economy where the decisions of a central planner are replaced by those of millions of firms and households interacting in the marketplace.

Invisible Hand

Adam Smith's concept that firms and households in competitive markets, guided by prices and self-interest, act as if led to desirable economic outcomes.

Property Rights

The legal ability of individuals to own and control scarce resources.

Market Failure

A situation in which a market left on its own does not allocate resources efficiently.

Externality

The uncompensated impact of one person’s actions on the well-being of a bystander.

Market Power

The ability of a single economic actor (or small group of actors) to unduly influence market prices.

Productivity

The quantity of goods and services produced from each unit of labor input.

Inflation

An increase in the overall level of prices in the economy.

Business Cycle

Fluctuations in economic activity, such as employment and production.