Reasons we study economics 1. Resources are scarce 1. Land 2. Labor 3. Capital: anything that can be touched (computers, machines, etc.) 2. Human Wants-Unlimited
Efficiency: Getting the most out of your products
Opportunity Cost: of an item is what you give up to get it.
Rational People: systematically and purposefully do the best they can to achieve their objectives, given the available opportunities
Marginal Change: to describe a small incremental adjustment to an existing plan of action. Keep in mind that margin means “edge,” so marginal changes are adjustments around the edges of what you are doing. Rational people often make decisions by comparing marginal benefits and marginal costs .
Incentive: is something that induces a person to act, such as the prospect of a punishment or a reward. Because rational people make decisions by comparing costs and benefits, they respond to incentives.
Market Economy: the decisions of a central planner are replaced by the decisions of millions of firms and households. Firms decide whom to hire and what to make. Households decide which firms to work for and what to buy with their incomes. These firms and households interact in the marketplace, where prices and self-interest guide their decisions.
Property Rights: the ability of an individual to own and exercise control over scarce resources so individuals can own and control scarce resources. A farmer won't grow food if he expects his crop to be stolen; a restaurant won't serve meals unless it is assured that customers will pay before they leave; and an entertainment company won't produce DVDs if too many potential customers avoid paying by making illegal copies. We all rely on government-provided police and courts to enforce our rights over the things we produce—and the invisible hand counts on our ability to enforce our rights. Government promotes this. 1. It is essential that the government protect private property rights (by providing a strong police force, having a robust court system)
Market Failure: to refer to a situation in which the market on its own fails to produce an efficient allocation of resources.
Externality: one possible cause of market failure is the impact of one person's actions on the well-being of a bystander. The classic example of an externality is pollution.