Chapter 1: Ten Principles of Economics

Vocabulary flashcards covering core economic terms and concepts from Chapter 1 of Mankiw's Principles of Microeconomics, 10th Edition.

Scarcity

The condition in which society has limited resources and, therefore, cannot produce all the goods and services people want.

Economics

The study of how society manages its scarce resources.

Efficiency

The property of society getting the most it can from its scarce resources.

Equality

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

Opportunity cost

Whatever must be given up to obtain some item.

Rational people

People 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 in which the decisions of a central planner are replaced by those of millions of firms and households.

Invisible hand

The concept introduced by Adam Smith in 1776 stating that firms and households interacting in competitive markets act as if guided to desirable outcomes, primarily through prices.

Market failure

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

Externality

The 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.

Scarcity

This happens when there aren’t enough resources to satisfy all the wants of people.

Economics

The study of how people and society use limited resources.

Efficiency

How well society uses its limited resources to get the most output.

Equality

The fair distribution of wealth and resources among everyone.

Opportunity cost

The cost of choosing one option over another, measured by what you give up.

Rational people

People who make smart choices to achieve their goals based on available options.

Marginal change

A small adjustment made to a plan.

Incentive

Something that encourages someone to take action.

Market economy

An economy where businesses and households make their own decisions instead of a central planner.

Invisible hand

A concept by Adam Smith that describes how individuals making choices in a free market can lead to beneficial outcomes for society.

Market failure

A situation where the free market does not distribute resources efficiently.

Externality

When one person’s actions affect others, often without compensation.

Market power

The ability of a single seller or small group to influence prices.

Productivity

The amount of goods and services produced with each unit of labor.

Inflation

When prices rise overall in the economy.

Business cycle

The ups and downs of economic activity, such as employment and production levels.