Economy: How a society makes decisions on the use of its resources.
Opportunity Cost: That which one must give up to get something.
Efficiency: The property by which society gets the most from its scarce resources.
Equity: The property by which economic prosperity is distributed equally among members of society.
Market Economy: An economy that allocates resources through the decentralized decisions of many companies and households as they interact in markets for goods and services.
Market Failure: A situation in which a market fails to allocate resources efficiently on its own.
Market Power: The ability of a trader to have a significant influence on market prices.
Productivity: The amount of goods and services produced for each hour of work.
Inflation: An increase in the general level of prices in an economy.
Phillips Curve: A curve showing the short-term trade-off between inflation and unemployment.
Circular Flow Diagram: A visual model of the economy that shows how dollars flow through markets among households and businesses.
Principles of Economics
People face trade-offs: You must choose between two or more options.
Opportunity Cost: That which we give up to get something.
Rational people think at the margin: They make every effort to achieve their objectives.
Individuals respond to incentives: Factors that induce people to act.
Trade can improve the welfare of the world: Promotes exchange and specialization, which reduces prices.
Markets are usually a good mechanism for organizing economic activity: Decisions are taken by many people.
Sometimes the state can improve market outcomes: Addressing market failures and ensuring efficient resource allocation.
Externality: The impact of a person's actions on the welfare of others.
The standard of living depends on a country's ability to produce goods and services: Differences in living standards are attributed to productivity. Higher production leads to a higher standard of living.
When the government prints too much money, prices rise: Inflation is an increase in the total price level due to excessive money circulation.
In the short term, society faces a trade-off between inflation and unemployment: An increase in the amount of money increases spending and demand for goods and services, leading firms to produce more and hire more workers.
