1 & 2 Flashcards
economics
the study of how society manages its scarce resources
scarity
the limited nature of society’s resources
economic theory
helps to analyze the impact of government policy because it helps understand. the factors that may have influence the behavior of interest
Microeconomics
the study of the economic choices individual and firms make and of how these choices create markets and affect welfare
macroeconomics
a broad economy like a country or world economy
production possibilities frontier
a graph showing all possible combinations of goods that can be produced with a fixed number of resources
first economic principle
people face tradeoffs
second economic principle
cost of something is what you give up
third economic principle
people respond to incentives
fourth economic principle
people think about marginal change
fifth economic principle
Trade can make everyone better off
sixth economic principle
market is the best way to organize the economic activities free market/planned economy
seventh economic principle
government can improve sometimes free market outcome
eighth economic principle
country standards of living depends on its ability to produce things other people want to buy
ninth economic principle
prices are rising when the government prints too much money
tenth economic principle
tradeoff between inflation and unemployment in the short run
diminishing returns
hypothesis that the cost associated with producing one more unit of a good rise as more of that good is produced
equilibrium price
the price at which the quantity demanded by buyers of a good is equal to the quantity supplied by sellers of the good
marshal supply and demand curve cross
demand and supply together determined the equilibrium price P and quantity Q of a good
testing assumption
verifying economic models by examining the validity of the assumption on which they’re based
testing prediction
verifying economic models by asking if they can accurately predict real world events
