CHAPTER 1
Utility: benefit obtained from a good.

Marginal: change incurred from the last unit.

Scarcity: a situation in which unlimited wants exceed the limited resources available to fulfill those wants.

Economics: the study of the choices people make to attain their goal, given their scarce resources.

Economic model: a simplified version of reality used to analyze real-world economic situations.

Market: a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

Marginal analysis: analysis that involves comparing marginal benefits and marginal costs.

Trade-off: the idea that because of scarcity, producing more of one good or service means producing less of another good or service.

Opportunity cost: the highest valued alternative that must be given up to engage in an activity.

Centrally planned economy: an economy in which the government decides how economic resources will be allocated.

Market economy: an economy in which the decisions of households and firms interacting in markets allocate economic resources.

Mixed economy: an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.

Productive efficiency: a situation in which a good or service is produced at the lowest possible cost.

Allocative efficiency: a state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.
Voluntary exchange: a situation that occurs in markets where both the buyers and seller of a product are made better off by the transaction.

Equity: the fair distribution of