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Eco 1104 chapters 1-4.docx

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University of Ottawa

ECO 1104Chapter 1Key TermsScarcity the limited nature of societys resourcesEconomics the study of how society manages its scarce resourcesEfficiency the property of society getting the most it can from its scarce resourcesEquity the property of distributing economic prosperity fairly among the members of societyOpportunity Cost whatever must be given up to obtain some itemRational People people who systematically and purposefully do the best they can to achieve their objectivesMarginal Changes small incremental adjustments to a plan of actionIncentive something that induces a person to actMarket Economy an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and servicesProperty Rights the ability of an individual to own and exercise control over scarce resourcesMarket Failure a situation in which a market left on its own fails to allocate resources efficientlyExternality the impact of one persons actions on the wellbeing of a bystanderMarket Power the ability of a single economic actor or small group of actors to have a substantial influence on market pricesProductivity the quantity of goods and services produced from each hour of a workers timeInflation an increase in the overall level of prices in the economyBusiness Cycle fluctuations in economic activity such asemployment and productionTen Principles of Economics1People face tradeoffs2The cost of something is what you give up to get it3Rational people think at the margin4People respond to incentives5Trade can make everyone better off6Markets are usually a good way to organize economic activity7Governments can sometimes improve market outcomes8A countrys standard of living depends on its ability to produce goods and services9Prices rise when the government prints too much money
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