Unit 1: Introduction to Economic Principles

Microeconomics

Study of individual decision-makers such as households and firms.

Macroeconomics

Study of the economy as a whole, including aggregates like GDP, unemployment, inflation.

Aggregate

Total or combined measure across the whole economy.

Market Structure

Organization of markets based on competition (perfect competition, monopoly, etc.).

Economic System

The method a society uses to allocate resources and distribute goods/services.

Traditional Economy

System based on customs, traditions, and habits.

Command Economy

System where a central authority makes all economic decisions.

Market Economy

System where supply and demand guide decisions.

Mixed Economy

Blend of market and government decision-making.

Model

Simplified representation of reality used to analyze and predict behavior.

Assumption

A condition taken as true in a model to simplify analysis.

Scarcity

Limited resources relative to unlimited wants.

Trade-off

Sacrificing one option when choosing another.

Opportunity Cost

Value of the next best alternative forgone.

Allocation

Distribution of resources to different uses.

Land

Natural resources used in production.

Labor

Human effort (physical and mental) used in production.

Capital

Tools, machinery, buildings used to produce goods/services.

Entrepreneurship

Risk-taking and innovation in organizing production.

Marginal Analysis

Comparing additional benefits and costs of a choice.

Marginal Benefit (MB)

Extra benefit gained from one more unit of activity.

Marginal Cost (MC)

Extra cost incurred from one more unit of activity.

Decision Rule

Take an action if MB ≥ MC; stop if MB < MC.

Rational Choice Assumption

Assumption that individuals act logically to maximize benefit.

Behavioral Economics

Field studying how psychology influences economic decisions.

Bounded Rationality

Idea that decision-making is limited by information, time, and cognitive ability.

Critical Thinking

Objective evaluation of information to form a reasoned judgment.

Unintended Consequences

Results not anticipated when making decisions or policies.

Short-run

Period when at least one resource is fixed.

Long-run

Period when all resources can be varied.

Bias

Prejudice or leaning that affects judgment.

Positive Economics

Describes "what is" in the economy (fact-based).

Normative Economics

Describes "what ought to be" (value-based).

Production Possibilities Frontier (PPF)

Graph showing trade-offs and opportunity costs between two goods.

Circular Flow Model

Diagram showing flow of goods, services, and money between households, firms, and government.