Economics Chapter 1: What is Economics?

Vocabulary flashcards covering core concepts from Chapter 1 of Microeconomics (ECON 2010U).

Scarcity

The condition that arises because our wants exceed our ability to satisfy them; the limited nature of resources.

Incentive

A reward that encourages an action or a penalty that discourages an action.

Economics

The social science that studies the choices individuals, businesses, governments, and societies make to cope with scarcity and the incentives that influence those choices.

Microeconomics

The study of choices by individuals and businesses, how those choices interact in markets, and the influence of governments.

Macroeconomics

The study of the performance of national and global economies.

Factors of production

The resources used to produce goods and services, grouped into land, labour, capital, and entrepreneurship.

Land

Gifts of nature used to produce goods and services.

Labour

The work time and effort people devote to producing goods and services.

Human capital

The knowledge and skills that people obtain from education, on‑the‑job training, and work experience.

Capital

Tools, machines, buildings, and other physical means used to produce goods and services.

Entrepreneurship

The human resource that organizes land, labour, and capital and drives innovation and risk-taking.

What, How, For Whom

Key questions that determine what gets produced, how it is produced, and for whom it is produced.

For Whom

Who gets the goods and services; determined by incomes earned from land, labour, capital, and entrepreneurship.

Self-interest

Choices that are best for oneself.

Social interest

Choices that are best for society as a whole; has two dimensions: efficiency and equity.

Efficiency

A situation where resources are used so that you cannot make someone better off without making someone else worse off.

Equity

Fairness; economists have various views about what is fair.

Globalization

The expansion of international trade, borrowing and lending, and investment; can benefit consumers and multi-national firms but raises questions about workers and firms in different regions.

Climate change

Long‑term changes in Earth's climate driven by emissions from burning fossil fuels; a major political and economic issue.

Carbon footprint

The total amount of carbon dioxide emissions caused by a person’s or organization’s activities.

Economic instability

Financial crises where actors’ self‑interested choices may not serve the social interest, e.g., banking crises.

Tradeoff

Every choice involves giving up one option to obtain another.

Rational choice

A choice that compares benefits and costs to maximize net benefit for the chooser.

Benefit

The gain or pleasure obtained from a good or service, determined by preferences.

Cost

What you must give up to get something; includes forgone alternatives and the time sacrificed.

Opportunity cost

The highest-valued alternative that must be given up to obtain something.

Marginal analysis

Evaluating decisions by comparing the extra benefit and the extra cost of a small change.

Marginal benefit

The additional benefit obtained from increasing an activity by one more unit.

Marginal cost

The additional cost incurred from increasing an activity by one more unit.

Preferences

What a person likes and dislikes, and the strength of those feelings, which affect benefit.

Economic way of thinking

Six key ideas: tradeoffs; rational choices; benefits; costs; margins; incentives.