Microeconomics Chapter 1: What Is Economics?

Vocabulary practice flashcards defining foundational concepts from Chapter 1 of Microeconomics (Parkin, 13th edition), including scarcity, production factors, marginal decision-making, and graphical principles.

Scarcity

The condition wherein human wants exceed the resources available to satisfy them; our inability to satisfy all of our wants.

Economics

The social science that studies the choices made by individuals, businesses, governments, and entire societies as they cope with scarcity.

Incentive

A reward that encourages an action or a penalty that discourages an action; an inducement to take a particular action.

Microeconomics

The branch of economics that studies the choices made by individual units—such as households and firms—the way these choices interact in markets, and the influence exerted by governments.

Macroeconomics

The branch of economics that examines the aggregate (total) and economy-wide effects on the national and global economy of the choices that individuals, businesses, and governments make.

Factors of Production

The productive resources used to produce goods and services, classified into four categories: land, labor, capital, and entrepreneurship.

Land

The 'gifts of nature' or natural resources used in the production of goods and services, such as minerals, water, and arable soil. Land earns rent.

Labor

The work time and work effort that people devote to producing goods and services. Labor earns wages and represents the factor that earns the most income in the United States.

Capital

The tools, instruments, machines, buildings, and other manufactured items that businesses use in production. Capital earns interest.

Human Capital

The knowledge and skill that people obtain from education, on-the-job training, and work experience.

Entrepreneurship

The human resource that organizes land, labor, and capital, conceives new ideas for production, and bears the risks associated with business decisions. Entrepreneurship earns profit.

Social Interest

Outcomes and choices that are best for society as a whole, rather than solely benefiting individual decision makers.

Economic Efficiency

A situation in which it is impossible to make someone better off without making anyone else worse off.

Centrally Planned Socialism

An economic system in which the government directs workers to jobs, owns all land and capital, and centrally decides what, how, and for whom goods and services are produced.

Tradeoff

An exchange where one must give up one thing in order to obtain something else.

Opportunity Cost

The highest-valued alternative forgone or given up when making a choice.

Choosing at the Margin

Making decisions by comparing the relevant benefits and costs of a small, one-unit increase or decrease in an activity.

Marginal Benefit

The additional gain or benefit that arises from a one-unit increase in an activity.

Marginal Cost

The opportunity cost that arises from a one-unit increase in an activity.

Positive Statement

A statement that describes 'what is' and how the world appears, which can be tested against the facts to verify whether it is right or wrong.

Normative Statement

A statement about 'what ought to be,' reflecting value judgments, morals, or opinions that cannot be tested or proven false.

Economic Model

A description of some aspect of the economic world that includes only those essential features needed for the purpose at hand, simplifying reality.

Scatter Diagram

A graph that plots the value of one variable against the value of another variable to show the relationship between them.

Positive (Direct) Relationship

A relationship between two variables that move in the same direction, such that an increase in one is accompanied by an increase in the other, producing an upward-sloping line or curve.

Negative (Inverse) Relationship

A relationship between two variables that move in opposite directions, such that an increase in one is accompanied by a decrease in the other, producing a downward-sloping line or curve.

Slope

The ratio of the change in the variable on the vertical axis ($y$-axis) to the change in the variable on the horizontal axis ($x$-axis), calculated as $\frac{\Delta y}{\Delta x}$.

Slope Across an Arc

A method used to approximate the slope of a curved line between two separate points on the curve by calculating $\frac{\Delta y}{\Delta x}$ across the straight arc between them.

Slope at a Point

The slope of a curved line evaluated at a specific point, defined as the slope of the straight tangent line that touches the curve at that single point.

Ceteris Paribus

A Latin phrase meaning 'other things being equal,' representing the assumption of holding all other variables constant when analyzing the relationship between two specific variables.