Microeconomics Chapter 1

Scarcity

The limited nature of society's resources compared to people's unlimited wants and needs

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 evenly among the members of society

Opportunity cost

Whatever must be given up in order to obtain some item or take some action

Rational people

People who systematically and purposefully do the best they can to achieve their objectives, given the opportunities they have

Marginal change

A small, incremental adjustment to an existing plan of action

Incentive

Something that induces a person to act, such as the prospect of a reward or the fear of a punishment

Market economy

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

Property rights

The ability of an individual to own and have control over scarce resources

Market failure

A situation in which a market left on its own fails to allocate resources efficiently

Externality

The impact of one person's (or firm's) actions on the well-being of a bystander who had no say in the decision

Market power

The ability of a single economic actor, or a 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, across the economy