Chapter 1: Ten Principles of Economics - Vocabulary

Vocabulary flashcards based on key terms from Chapter 1 of Mankiw's Principles of Microeconomics (10th Edition).

Scarcity

The condition where 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, often referred to as the size of the economic pie.

Equality

The property of distributing economic prosperity uniformly among the members of society, referring to how evenly the economic pie is divided into individual slices.

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 interacting in the marketplace.

Invisible hand

Adam Smith's concept that firms and households in competitive markets act as if guided by an unseen force that leads them to desirable market outcomes.

Property rights

The ability of individuals to own and exercise control over scarce resources, enforced by government institutions.

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 an economic entity 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.