Intro to Economics - Key Concepts (Vocabulary)

Vocabulary flashcards covering core economic concepts such as scarcity, trade-offs, opportunity cost, marginal analysis, incentives, markets, and government intervention.

Scarcity

Resources are limited, so people must make decisions about how to use them.

Economics

The study of how people manage scarce resources and make choices about what to do.

Trade-off

A choice between alternatives where selecting one option means giving up others.

Time scarcity (example)

Limited time leads to decisions about work versus leisure and other activities.

Opportunity Cost

The value of the next best alternative forgone when making a decision.

Sunk Cost

Costs already spent that should not affect future decision-making.

Marginal Analysis

Evaluating the additional benefits and costs of one more unit of an action.

Marginal Cost

The extra cost of producing one more unit or taking one more action.

Marginal Benefit

The additional benefit received from one more unit of an action.

Incentives

Factors that induce people to act in a certain way, such as rewards or penalties.

Trade (specialization and exchange)

Exchange between people or countries where specialization can improve everyone's situation.

Market

A group of buyers and sellers that determines what and how much to produce and who gets the goods through decentralized decisions.

Invisible Hand

Adam Smith's idea that individuals pursuing self-interest via prices leads to overall economic well-being.

Prices

Signals that reflect value to buyers and cost of production to sellers, guiding decisions.

Property Rights

Legal rights to own and use resources, enforced by government to support economic activity.

Market Failure

When resources are not allocated efficiently due to various factors like externalities or market power.

Externalities

Costs or benefits of a transaction affecting third parties not directly involved.

Public Policy

Government actions aimed at improving efficiency or equity in the economy.

Efficiency vs. Equity Trade-off

Redistributing income can raise equality but may reduce incentives or overall efficiency.

Public Goods (examples in notes)

Goods provided by government (e.g., education, highways) that benefit society as a whole.

Specialization

Focusing on tasks where one has a comparative advantage to gain from trade.

Adam Smith

Economist who described the invisible hand and price-driven coordination of markets.