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ECON 1BB3 (332)
Chapter 1

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McMaster University
Krishnakali Sen Gupta

Chapter 1 Zahra Haidari Definitions in Entire Chapter Scarcity: means that society has limited resources and therefore cannot produce all the goods and services that people wish to have. Just as every household cannot give every member what he/she wants, a society cannot give every individual what he or she aspires. Economics: The study of how a society manages its scarce resources Efficiency: Society getting the most it can from its scarce resources. Equity: Property of splitting economic prosperity fairly among members of society. Opportunity Cost: Whatever must be given up to obtain an item. Rational People: People who systematically and purposefully do the best they can to achieve their objectives. Marginal Changes: Small incremental adjustments to plan an action. Incentive: Something that induces a person to act. (It may be a punishment or a reward) Market Economy: An economy driven by the decisions of millions of households and firms. Property Rights: The ability of an individual to own and exercise control over scarce resources. Market Failure: occurs in a situation in which the market left on its own fails to allocate resources efficiently. Externality: The impact of one person’s actions on the wellbeing of a bystander Market Power: The ability of a single economic actor (or a few actors) to have a substantial influence on market prices Productivity: the quantity of goods and services produced for
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