Economics Principles and Key Terms

Vocabulary flashcards covering key economic concepts, trade principles, institution roles, macro policies, and monetary terms from Chapter 1.

Marginal Principle

The decision-making principle stating that an action makes sense as long as the marginal benefit is greater than the marginal cost.

Trade

A voluntary activity that moves goods from lower value to higher value uses, which people enter into only if they expect to be made better off.

Gains from Trade

The societal benefits achieved when goods are moved from lower value to higher value uses through voluntary exchange.

Theory of Comparative Advantage

The idea that when people or nations specialize in goods in which they have a low opportunity cost, they trade to mutual advantage.

Opportunity Cost

The value of the next best alternative foregone when a decision is made.

Wealth

The stock of assets held by a person at a point in time, including money and all property of value.

Income

The amount of money received over a specific period of time, such as a monthly salary.

Institutions

The rules of the game in an economy—including laws, regulations, and cultural norms—that set up incentives for the choices people make.

Monopoly

A market condition in which a single business rules an entire industry, preventing competition and allowing the firm to set prices.

Economic Boom

An economic expansion that, if too rapid, can lead to overheating in the economy.

Economic Bust

A period marked by a recession or a general slowdown of economic activity.

Monetary Policy

Actions taken by a country's central bank (such as the Federal Reserve) to manage the money supply and interest rates.

Fiscal Policy

Actions taken by the federal or central government concerning taxation and government spending.

Inflation

An increase in the general level of prices across the entire economy, driven by a sustained increase in the money supply.