10 Principles of Econ Flashcards
The study of how society managed its scarce resources.
Economics
The principles of economics study___.
how people make descisions
People face tradeoffs.
Principle 1
All decisions involve tradeoffs.
Principle 1
Society faces the trade off of:
efficiency versus equality
Society gets the most from its scarce resources.
Efficiency
Prosperity is distributed uniformly among society’s members.
Equality
to achieve greater equality, could redistribute income from the wealthy to the poor.
Tradeoff
___reduces incentive to work and produce.
tradeoff
The cost of something is what you give up to get it.
Principle 2
Making decisions requires comparing the costs and benefits of alternative choices.
Principle 2
the opportunity cost of any item is (principle 2)
what ever is given up to obtain it
Rational people think at the margin.
Principle 3
___systematically and purposefully do the best they can to achieve objectives.
rational people
___make decisions by evaluating the cost and benefits of marginal changes.
rational people
People respond to incentives
Principle 4
an ____ is something that induces a person to act.
incentive
Incentives are part of principle___
4
rational people respond to____
incentives
trade can make everyone better off
principle 5
principle 5: specialization over ____
self sufficiency
Markets are usually a good way to organize economic activity.
principle 6
Markets are a good way to coordinate trade.
principle 6
group of buyers and sellers
market
a ___ economy allocates resources through decentralized decisions of many households and firms as they interact.
market
“act as if led by an invisible hand”
Adam Smith
said that individuals are better off specializing in what they do best.
Adam Smith
interactions of ___ determines prices.
buyers/sellers
each price reflects a goods value to ___ and the ___ ___ ___.
buyers, cost of production
The invisible hand works through the ___ ___.
price system
Governments can some times improve market outcomes
principle 7
the government enforces property rights
principle 7
market failure
fails to allocate societies resources efficiently
a country’s standard of living depends on their ability to produces goods/services
principle 8
___ is the ultimate source of living standards
productivity
_____ is the ultimate source of inflation.
money growth
amount of goods/services produces per unit of labor
productivity
Prices rise when the government prints too much money.
Principle 9
The increase of the general level of prices.
Inflation
society faces a short-run trade off between inflation and unemployment.
Principle 10
