Intro to Economics - Chapter 1 Vocabulary

Vocabulary flashcards covering key economic concepts from Chapter 1 lecture notes.

Opportunity cost

The value of the next best alternative forgone when making a choice.

Scarcity

A condition where wants and needs exceed available resources, forcing trade-offs.

Marginal decision making

Decisions made one step at a time by comparing marginal (additional) benefits and costs.

Sunk costs

Costs that have already been incurred and cannot be recovered; they should not affect future decisions.

Incentives

Factors that influence decisions; positive incentives encourage a behavior, negative incentives discourage it.

Efficiency

A situation where you cannot make someone better off without making someone else worse off.

Positive analysis

Statements about how the world is; objective and testable.

Normative analysis

Statements about how the world should be; value judgments and prescriptions.

Correlation

Two events that tend to occur together; does not by itself prove causation.

Causation

A relationship where one event causes another; evidence beyond correlation is needed.

Next best alternative

The best option you would choose if your current option were not available.

Diminishing marginal benefit

The idea that the additional satisfaction from each extra unit of a good decreases as you consume more.

Rational behavior

Assuming individuals compare options and choose to maximize their goals.

Microeconomics

The study of individual decision making, markets, and how scarcity and trade-offs operate at the level of individuals, firms, and households.

Trade-offs

Giving up one good or option to gain another due to limited resources.

Direct costs vs. Opportunity costs

Direct costs are out-of-pocket expenses; opportunity costs are the value of the next best alternative foregone.

Time as a resource

Time is a finite resource that constrains decisions, just like money.

Good economic model

A model that is simple enough to be understood but complex enough to explain and predict real-world phenomena; relies on clear assumptions.

Marginal cost

The additional cost of producing or consuming one more unit of a good.