Microeconomics Chapter 1 Key Concepts and Terms

microeconmics

The cost of any action is measured in terms of _____

forgone opportunities

rational people make decisions by ______

comparing marginal costs and marginal benefits

people change their behavior in response to _____

the incentives they face

fundamental lessons about economic interactions among people:

trade and interdependence can be mutually beneficial, markets are usually a good way of coordinating economic activity, and governments can potential improve market outcomes by remedying a market failure or by promoting grater economic equality

fundamental lessons about the economy as a whole:

productivity is the ultimate source of living standards, growth in the quantity of money is the ultimate source of inflation, society faces a short-run trade-off between inflation and unemployment

scarcity

the limited nature of society’s resources

economics

the study of how society manages its scarce resources

equality

the property of distributing economic prosperity uniformly among the members of society

efficiency

the property of society getting the most it can from its scarce resources

opportunity cost

whatever must be given up to obtain some item

rational people

people who systematically and purposefully do the best they can to achieve their objectives

marginal change

an incremental adjustment to a plan of action

incentive

something that induces a person to act

market economy

an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods/services

property rights

the ability of an individual to own and exercise control over scarce resources

market failure

a situation in which a market left on its own does not allocate resources efficiently

externality

the impact of one person’s actions on the well-being of a bystander

market power

the ability of a single economic actor (or small group of actors) to have a substantial influence in market prices

productivity

the quantity of goods and services produced from each unit of labor

inflation

an increase int he overall level of prices in the economy

business cycle

fluctuations in economic activity such as employment and production