Microeconomics - Key Terms Glossary Chapter 1 business cycle fluctuations in economic activity, such as employment and production 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 society externality the impact of one person’s actions on the well-being of a bystander incentive something that induces a person to act inflation an increase in the overall level of prices in the economy marginal changes small incremental adjustments to a plan of action market economy an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services market failure a situation in which a market left on its own fails to allocate resources efficiently market power the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices opportunity cost whatever must be given up to obtain some item productivity the quantity of goods and services produced from each hour of a worker’s time property rights the ability of an individual to own and exercise control over scarce resources rational people people who systematically and purposefully do the best they can to achieve their objectives scarcity the limited nature of society’s resources Chapter 2 circular-flow diagram a visual model of the economy that shows how dollars flow through markets among households and firms macroeconomics the study of economy wide phenomena, including inflation, unemployment, and economic growth microeconomics the study of how households and f...
