ECON 201: Chapter 1 Vocabulary

Vocabulary flashcards covering core concepts, economic models, market types, efficiencies, and forms of analysis from Chapter 1 of ECON 201.

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants.

Economics

The study of the choices people make to attain their goals, given their scarce resources.

Economic Models

Simplified versions of reality used to analyze real-world economic situations.

Microeconomics

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

Macroeconomics

The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.

Market

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

Marginal Cost and Marginal Benefit (MC and MB)

The additional cost or benefit associated with a small amount extra of some action.

Marginal Analysis

The economic process of comparing marginal cost (MC) and marginal benefit (MB) to make optimal decisions.

Trade-off

An outcome resulting from the scarcity of productive resources where an increase in the production of one good requires the reduction in the production of some other good.

Centrally Planned Economy

An economy in which the government decides how economic resources will be allocated.

Market Economy

An economy in which the decisions of households and firms interacting in markets allocate economic resources.

Mixed Economy

An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.

Productive Efficiency

A situation in which a good or service is produced at the lowest possible cost.

Allocative Efficiency

A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.

Voluntary Exchange

A situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction.

Equity

The fair distribution of economic benefits.

Positive Analysis

Analysis concerned with what is.

Normative Analysis

Analysis concerned with what ought to be.