Key Economic Terms and Concepts

Business Cycle

• Fluctuations in economic activity and levels of employment and production. Crucial for predicting economic trends.

Economics

• Study of how society manages its scarce resources, including production, distribution and consumption.

Efficiency

• Maximizing output from scarce resources to minimize waste.

Equality

• Uniform distribution of economic prosperity. Often involves trade-offs with efficiency.

Externality

• Uncompensated impact of actions on bystanders. Often requires government intervention.

Incentive

• Inducement for a person to act by weighing costs and benefits.

Inflation

• Increase in overall price levels, reducing purchasing power.

Marginal Change

• Incremental plan adjustment comparing marginal benefits with marginal costs for optimal decisions.

Market Economy

• Resource allocation through decentralized decisions of firms and households, guided by supply and demand.

Market Failure

• Inefficient resource allocation. May require government intervention.

Market Power

• Ability of an actor to influence market prices, leading to higher prices and reduced consumer welfare.

Opportunity Cost

• Whatever is given up to obtain something, crucial for rational decision-making.

Productivity

• Quantity of goods and services produced from each unit of labor. Key driver of economic growth.

Property Rights

• Ability to control scarce resources, encouraging investment and innovation.

Rational People

• People who make decisions to maximize their well-being.

Scarcity

• Limited nature of society’s resources, forcing choices on resource allocation.