AP Microeconomics: Chapter 1

Terms	Definitions
Scarcity	the limited nature of society's resources.
Economics	the study of how society manages its scarce resources.
Efficiency	the property of society getting the most it can from its scarce resources.
Equity	the property of distribution economic prosperity fairly among the members of society.
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 changes	small incremental adjustments to a plan of action.
Incentives	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 and 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 fails to 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 on market price.
Productivity	the quantity of goods and services produced from each hour of a worker's time.
Inflation	an increase in the overall level of prices in the economy.
Business cycle	fluctuations in economic activity, such as employment and production.

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