Ch1

  • Economics
    The study of how people use limited resources to satisfy wants.

  • Incentives
    Rewards and penalties that motivate behavior.

  • Self-interest
    Acting based on one’s own goals or benefit.

  • Social interest
    What benefits society as a whole.

  • Invisible hand
    The idea that individuals pursuing self-interest can also benefit society.

  • Markets
    Systems where people buy and sell goods and services.

  • Taxes
    Government charges used to influence behavior.

  • Subsidies
    Government payments to encourage certain activities.

  • Regulation
    Government rules that shape behavior and markets.

  • Trade-off
    Choosing one thing means giving up another.

  • Opportunity cost
    The value of the next best alternative that is given up.

  • Scarcity
    Limited resources that cannot satisfy all wants.

  • The great economic problem
    How to use limited resources to satisfy as many wants as possible.

  • Drug lag
    Harm caused when approval of a safe drug is delayed.

  • Drug loss
    When a safe drug is never developed due to high costs.

  • Marginal
    Refers to one more or one less.

  • Marginal cost
    The cost of one additional unit.

  • Marginal benefit
    The benefit of one additional unit.

  • Marginal revenue
    The extra revenue from one additional unit.

  • Marginal tax rate
    The tax rate applied to an additional unit of income.

  • Trade
    Exchange that makes people better off.

  • Specialization
    Focusing on producing specific goods to increase efficiency.

  • Economies of scale
    Lower costs per unit when production increases.

  • Comparative advantage
    Ability to produce a good at a lower opportunity cost.

  • Theory of comparative advantage
    Specializing based on lower opportunity cost leads to gains from trade.

  • Mutual advantage
    Both sides benefit from trade.

  • Wealth
    The total resources or assets in an economy.

  • Economic growth
    An increase in production of goods and services over time.

  • GDP
    Total value of goods and services produced in a country.

  • GDP per capita
    GDP divided by population.

  • Life satisfaction
    How satisfied people are with their lives.

  • Institutions
    Rules and systems that shape economic behavior.

  • Physical capital
    Tools, machines, and buildings used to produce goods.

  • Human capital
    Skills, knowledge, and education of workers.

  • Innovation
    New ideas or technologies that improve production.

  • Efficient organization
    Using resources in the best possible way.

  • Property rights
    Legal rights to own and control property.

  • Political stability
    A stable government environment.

  • Honest government
    Government without corruption.

  • Dependable legal system
    A system that enforces laws fairly and consistently.

  • Competitive and open markets
    Markets where firms can freely compete.

  • Economic boom
    Period of strong economic growth.

  • Economic bust
    Period of economic decline.

  • Downturn
    When output falls and unemployment rises.

  • Output
    Total goods and services produced.

  • Unemployment
    When people who want jobs cannot find them.

  • Fiscal policy
    Government use of spending and taxes to influence the economy.

  • Monetary policy
    Control of the money supply by a central bank.

  • Volatility
    Large swings or instability in the economy.

  • Inflation
    Increase in the general level of prices.

  • Money supply
    Total amount of money in the economy.

  • Central bank
    Institution that controls the money supply.

  • Federal Reserve
    The central bank of the United States.

  • Sustained increase
    An increase that continues over time.

  • General level of prices
    The average price of goods and services.

  • Real value
    Purchasing power of money.

  • Excessive inflation
    Extremely high inflation that disrupts the economy.

  • Recession
    A significant decline in economic activity.

  • Lags
    Delays between policy actions and their effects.

  • Moving target
    Economic conditions changing before policies take effect.