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Microeconomics (Unit 1)

Terms in this set (22)

economy
a system for coordinating a society's productive activities
economics
managing resources the optimal way
market economy
an economy in which decisions about production and consumption are made by individual producers and consumers
scarcity
a situation in which unlimited wants exceed the limited resources available to fulfill those wants; all resources are scarce
Principle 1
choices are necessary because resources are scarce
Principle 2
the true cost of something is its opportunity cost
opportunity cost
what you must give up in order to get something
Principle 3
"How much" is a decision at the margin; decision at the margin to do more or less of something
marginal analysis
analysis that involves comparing marginal benefits and marginal costs
Principle 4
people usually respond to incentives, exploiting opportunities to make themselves better off
Principle 5
there are gains from trade
trade
providing goods and services in return for other goods and services; people get more of what they want through trade
specialization
specializing in a task that one is good at
Principle 6
markets move toward equilibrium
equilibrium
where nobody would be better off doing something else
invisible hand
the economy works toward equilibrium while nobody tells us what to do or how to do it
Principle 7
resources should be used efficiently to achieve a society's goals
efficient
getting the maximum results or yield from a resource
equity
a condition in which people receive from a relationship in proportion to what they give to it
Principle 8
markets usually lead to efficiency
Principle 9
when markets do not achieve efficiency, government intervention can improve society's welfare
Principle 10
government policies can change spending
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