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Chapter 1

ECON 1000 Chapter Notes - Chapter 1: Business Cycle, Opportunity Cost

Course Code
ECON 1000

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Economics Chapter 1 - Ten Principles of Economics
Scarcity: the limited nature of societies 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 distributing economic prosperity fairly among the members of
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
Incentive: 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
Property Rights: the ability of an individual to own and exercise control over scarce
Market Failure: a situation in which a market left on its own fails to allocate resources
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 prices
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
1. the fundamental lessons about individual decision making are that people face
tradeoffs among alternative goals, that the cost of any action is measured in terms of
forgone opportunities, that rational people make decisions by comparing marginal
costs and marginal benefits and that people change their behavior in response to the
incentives they face.
2. the fundamental lessons about interactions among people are that trade can be
mutually beneficial, that markets are usually a good way of coordinating trade among
people, an
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