Ten Principles of Economics

These flashcards cover key vocabulary terms and concepts related to the principles of economics, focusing on decision-making, resource allocation, and market dynamics.

Economy

Derived from the Greek 'oikonomos', referring to one who manages a household.

Scarcity

The limited nature of society’s resources.

Opportunity cost

The cost of what you give up to obtain one item.

Efficiency

Maximizing benefits from scarce resources; the size of the economic pie.

Equality

Uniform distribution of benefits among society's members. How the pie is distributed among its members.

Incentive

Something that induces a person to act, influencing decisions.

Marginal changes

Small incremental adjustments to a plan of action.

Trade-offs

The process of balancing one goal against another when making decisions.

Market economy

An economy that allocates resources through decentralized decisions of many firms and households.

Government intervention

Actions by the government to change the allocation of resources to promote efficiency or equality.

Market failure

A situation in which the market fails to produce an efficient allocation of resources.

Externality

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

Market power

The ability of a single person or small group 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.

Standard of living

The quality of life based on the ability to produce goods and services.

Short-run trade-off

The temporary relationship between unemployment and inflation.

Business cycle

Irregular fluctuations in economic activity, including employment and production.

Specialization

Focusing on the production of a limited variety of goods to improve efficiency.

Invisible hand

Adam Smith’s concept that individual self-interest drives economic well-being.

Public policy

Government policy designed to influence the economy, often affecting incentives.

Economics

study of how society manages its scarce resources for firms, households and government

Economist study

• how people make decisions

• how people interact with one another

• analyze forces and trends tht affect the economy

Principle 1

People face trade offs

Principle 2

The cost of something is what you give up to get it

Principle 3

Rational people think at the margin

marginal benefits > marginal cost