Chapter 1-2: Microeconomics

Scarcity

the limited nature of society’s resources

Efficiency

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

Opportunity Cost

whatever must be given up to obtain some item

Inventive

something that induces a person to act

Rational People

people who systematically and purposefully do the best they can to achieve their objectives

Marginal Change

an incremental adjustment to a plan of action

Market Economy

an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

Economies

the study of how society manages its scarce resources

Equality

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

Property rights

the ability of an individual to own and exercise control over scarce resources

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 have a substantial influence on 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

circular-flow diagram

a visual model of the economy that shows how dollars flow through markets among households and firms

production possibilities frontier

a graph that shows the combinations of output that the economy can possibly produce with the available factors of production and production technology

Microeconomics

the study of how households and firms make decisions and how they interact in markets

Macroeconomics

a study of economy-wide phenomena, including inflation, unemployment, and economic growth

Positive statements

claims that attempt to describe the world as it is

Normative statements

claims that attempt to prescribe how the world should be