Chapter 1: What is Economics? Vocabulary

Vocabulary flashcards generated from the first chapter of Microeconomics (14th Edition) by Michael Parkin, covering core definitions, economic terms, factors of production, and key ideas of economic thinking.

Scarcity

Our inability to satisfy all our wants.

Incentive

A reward that encourages an action or a penalty that discourages an action.

Economics

The social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices.

Microeconomics

A branch of economics (often called Price Theory, derived from the Greek word mikros meaning small) that focuses on choices made by individuals and businesses.

Macroeconomics

A branch of economics focused on explaining holistic economic development, growth, and aggregate outcomes.

Goods and services

Objects that people value and produce to satisfy human wants.

Factors of production

Productive resources used to produce goods and services, categorized into land, labor, capital, and entrepreneurship.

Land

The gifts of nature used as productive resources to produce goods and services, which earns rent.

Labor

The human effort added to produce goods and services, which earns wages.

Capital

Tools, instruments, machines, buildings, and other constructions used in production, which earns interest.

Entrepreneurship

The human resource that organizes land, labor, and capital, bearing risk and making operating decisions, which earns profit.

Rent

The income earned by the factor of production known as land.

Wages

The income earned by the factor of production known as labor.

Interest

The income earned by the factor of production known as capital.

Profit

The income earned by the factor of production known as entrepreneurship.

Self-Interest

Choices that an individual makes because they think they are best for themselves.

Social Interest

Choices that are best for society as a whole, which encompass two main dimensions: efficiency and fair shares.

Efficiency

A condition in resource use where it is not possible to make someone better off without making someone else worse off.

Tradeoff

An exchange that involves giving up one thing to get something else.

Rational Choice

A choice that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice.

Benefit

What you gain from something.

Opportunity Cost

The highest-valued alternative that must be given up to get something.

Marginal Benefit

The benefit received from pursuing an incremental increase in an activity.

Marginal Cost

The opportunity cost of pursuing an incremental increase in an activity.