What is Economics? - Mankiw and Taylor Chapter 1

Vocabulary flashcards covering core economic terms and principles from Mankiw and Taylor's Economics (5th Edition), Chapter 1: What is Economics?

The Economy

All the production and exchange activities that take place every day.

Economic Activity

How much buying and selling goes on in the economy over a period of time.

Firms

Organizations that buy factors of production (land, labour, and capital) and use them to produce goods and services.

Scarcity

The condition where society has limited resources and therefore cannot produce all the goods and services people wish to have.

Economics

The study of how society manages its scarce resources.

Efficiency

How society gets the most that it can from its scarce resources.

Equity

The distribution of the benefits of resources fairly among the members of society.

Opportunity Cost

What you give up to obtain an item, expressed as a ratio of the sacrifice in one good in terms of the gain in the other.

Marginal Changes

Small, incremental adjustments to an existing plan of action.

Economic Agents

An individual, firm, or organization that has an impact in some way on an economy.

Rationality (Being Rational)

The assumption that decision-makers can make consistent choices between alternatives.

Economic System

The way in which resources are organized and allocated to provide for the needs of an economy's citizens.

Capitalist Economic System

An economic system that incorporates private ownership of factors of production to produce goods and services exchanged through a price mechanism and operated primarily for profit.

Pure Market Economy

An economy with no government intervention that allocates resources through the decentralized decisions of many firms and households interacting in markets for goods and services.

Planned Economic System

An economy in which economic activity is organized by central planners who decide the answers to fundamental economic questions.

Invisible Hand

Adam Smith's 1776 observation that households and firms motivated by self-interest and guided by market prices reach outcomes that tend to promote general economic well-being.

Market Failure

A situation in which the market fails to allocate resources efficiently on its own.

Externality

The impact of one person or firm's actions on the well-being of a bystander.

Market Power

The ability of a single person or firm to unduly influence market prices.

Microeconomics

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

Macroeconomics

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

Economic Growth

The increase in the amount of goods and services in an economy over a period of time.

Gross Domestic Product Per Head

The market value of all final goods and services produced within a country in a given period of time divided by the population of that country.

Standard of Living

A measure of welfare based on the amount of goods and services a person's income can buy, usually measured by inflation-adjusted (real) income per head.

Productivity

The amount of goods and services produced from each hour of a worker's time.

Inflation

An increase in the overall level of prices in the economy.