Principles of Economics: Unit 1 - Foundations

These flashcards cover key principles and definitions from the lecture on economics.

Scarcity

The condition where limited resources cannot satisfy unlimited wants and needs, forcing individuals and societies to prioritize resource allocation and make trade-offs.

Opportunity cost

The value of the best alternative forgone when a choice is made.

Incentives

Factors that motivate individuals to act or change their behavior, including positive incentives (rewards) and negative incentives (penalties). Understanding incentives is essential in economics as they significantly influence decision-making in various contexts

Rationality in economics

The assumption that individuals act predictably based on their incentives.

Nominal value

The value measured in terms of currency, not adjusted for inflation.

Real value

The value expressed in terms of goods and services, comparable over time.

Marginal product

The additional output gained from employing an additional unit of an input.

Diminishing returns

A principle stating that as more of one input is added, the additional output will eventually decrease.

Market equilibrium

The state where supply equals demand, and prices stabilize.

Price gouging

The practice of raising prices to an unfair level during emergencies or shortages.

Five Fundamental Ideas

People respond to incentives

Resources are scarce

Real values matter

Prices reflect scarcity

Returns eventually diminish