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Econ. Ch. 1
| Question | Answer |
|---|---|
| What does scarcity mean? | Society has limited resources and cannot produce all the goods and services people wish to have. |
| What is economics? | The study of how society manages its scarce resources. |
| What do economists study? | How people make decisions; how people interact with each other; forces and trends that that affect the economy. |
| What is principle 1 of economics? | People face tradeoffs. |
| What are tradeoffs? | To get something that we like, we have to give up something else that we like. |
| What are some common examples of tradeoffs? | Guns and butter; Efficiency and equality |
| What does efficiency mean? | Society is getting maximum benefits from its scarce resources. |
| What does equality mean? | Benefits are distributed uniformly among society's members. (getting the most you can from scarce resources). |
| What is principle 2 of economics? | Cost of something is what you give up to get it. |
| What is opportunity cost? | What you give up to get an item. |
| What is principle 3 of economics? | Rational people think at the margin |
| Who are rational people? | Systematically and purposefully do the best they can to achieve their objectives, given the available opportunities. |
| What is a marginal change? | A small incremental adjustment to a plan of action. |
| How do rational people make decisions? | Comparing marginal benefits and marginal costs. |
| What is principle 4 of economics? | People respond to incentives. |
| What is an incentive? | Something (like punishment or reward) that induces a person to act. |
| What are the first 4 principles categorized under? | How people make decisions |
| What is principle 5 of economics? | Trade can make everyone better off |
| What is principle 6 of economics? | Markets are usually a good way to organize economic activity |
| What is a market economy? | Economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services. |
| What is principle 7 of economics? | Governments can sometimes improve market outcomes. |
| What are property rights? | The ability of an individual to own land exercise control over scarce resources. |
| What is market failure? | Situation in which a market left on its own fails to allocate resources efficiently. |
| What is an externality? | Impact of one person's actions on the well-being of a bystander |
| What is market power? | Ability of a single economic actor to have a substantial influence on market prices. |
| What are principles 5-7 categorized under? | How people interact |
| What are principles 8-10 categorized under? | How the economy as a whole works |
| What is principle 8 of economics? | A country's standard of living depends on its ability to produce goods and services |
| What is productivity? | The amount of goods and services produced by unit of labor input. |
| What is principle 9 of economics? | Prices rise when the government prints too much money |
| What is inflation? | Increase in the overall prices in the economy |
| What is principle 10 of economics? | Society faces a short-run trade-off between inflation and unemployment |
| What is a business cycle? | Fluctuations in economic activity, such as employment and production. |
Created by:
salem050
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