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
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
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
Productivity: the quantity of goods and services produced for