Introduction to Economics: Ten Principles and Economic Models

Comprehensive vocabulary flashcards defining fundamental microeconomic concepts, market interactions, and analytical models.

Scarcity

The limited nature of society's resources.

Economics

The study of how society manages its scarce resources, including how people decide what to buy, work, save, and spend, and how firms and society allocate resources.

Efficiency

The property of society getting the most from its scarce resources, aimed at maximizing the total size of the economic pie.

Equity

The property of distributing economic prosperity uniformly among society's members, aimed at equating the size of each individual's slice of the economic pie.

Opportunity Cost

Whatever must be given up to obtain an item; specifically, the value of the best foregone alternative.

Rational People

Individuals who systematically and purposefully do the best they can to achieve their objectives by evaluating the costs and benefits of marginal changes.

Marginal Changes

Incremental adjustments made to an existing plan or course of action.

Incentive

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

Market

A group of buyers and sellers of a good or service, which does not need to be situated in a single physical location.

Market Economy

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

Invisible Hand

The concept introduced by Adam Smith in 1776 stating that self-interested households and firms interacting in markets act as if guided by an unseen force to promote general economic well-being through the price system.

Market Failure

A situation in which a market on its own fails to allocate society's resources efficiently.

Externality

An uncompensated impact of one entity's actions on the well-being of a bystander (such as pollution), which serves as a cause of market failure.

Market Power

The ability of a single economic actor or small group of actors to have a substantial influence on market prices, as seen in a monopoly.

Scientific Method (in Economics)

The dispassionate development and testing of theories about how the world works.

Positive Statements

Descriptive claims that attempt to describe the world as it is, which can be confirmed or refuted by data.

Normative Statements

Prescriptive claims that attempt to prescribe how the world should be, based on value judgments that cannot be confirmed or refuted by data.

Model

A simplified representation of reality used by economists as a thought experiment to study economic issues.

Circular-Flow Diagram

A visual model of the economy showing how dollars flow through markets between households and firms.

Factors of Production

The resources the economy uses to produce goods and services, including labor, land, and capital.

Capital

Buildings, equipment, and machines used in the production of goods and services.

Perfect Competition

A market structure characterized by many buyers and sellers who are price takers, identical products and technologies, and free entry and exit.

Monopoly

A market structure characterized by many buyers who are price takers and a single seller who is a price maker/setter with a unique product and high entry barriers.