Econ Test Definitions.docx

Econ Test Definitions.docx - Econ Definitions Chapter 1...

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Econ Definitions Chapter 1: Microeconomics: focuses on the individual parts of the economy Macroeconomics: looks at the economy as a whole. Opportunity Cost: It is the cost of the best forgone alternative Rational People : consider costs and benefits of some action Marginal Changes: small incremental changes to an existing plan Marginal Benefit: additional satisfaction from consuming or producing one more unit of a good/service Marginal Cost: additional cost from consuming or producing one more unit of a good/service Incentive: something that encourages a person to act a certain way Market economy: allocates resources through the decentralized decisions of firms and households. Property Rights: ability of individual to own and exercise control over scarce resources. Efficiency: society makes the best use of its resources (size of the pie) Equity: involves the fair distribution of resources (how the pie is divided). Market failure: market unsuccessful at allocating resources efficiently. Externality: impact of one person’s actions on the well-being of a bystander. Market Power: ability of a single person or firm to have a substantial influence on market prices Chapter 2: Positive statements: attempt to describe the world as it is .
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