10 principles of econ

Question 1

principles of economics

Answer 1

(how people make decisions)
1. people face tradeoffs
2. opportunity cost
3. rational people think at the margin
4. people respond to incentives
(how people interact)
5. trade makes everyone better off
6. markets are usually a good way to organize economic activity
7. governments can sometimes improve market outcomes
(how the economy as a whole works)
8. a country’s standard of living depends on it’s ability to produce goods and services
9. prices rise when the government prints too much money
10. society faces a short-run tradeoff between inflation and unemployment

Question 2

explain principle 1: people face tradeoffs

Answer 2

when people are choosing between two competing alternatives, they must sacrifice one thing to gain another

Question 3

two examples of tradeoffs

Answer 3

1. guns and butter (national defense and consumer goods)
2. efficiency and equity

Question 4

what is efficiency

Answer 4

the best use of resources

Question 5

what is equity

Answer 5

distributing resources carefully

Question 6

explain principle 2: opportunity cost

Answer 6

the value you give up to obtain something else

Question 7

define marginal changes

Answer 7

small incremental adjustments to an existing plan in action

Question 8

explain principle 3: rational people think at the margin

Answer 8

rational people compare marginal benefits and marginal costs to take a decision

Question 9

define margin

Answer 9

additional

Question 10

explain principle 5: trade can make everyone better off

Answer 10

trade allows each country to specialize in what they’re good at, moreover, it helps with exchanging goods and services at a lower cost

Question 11

define market economy

Answer 11

the production and prices of goods and services are determined by supply and demand with minimal government control

Question 12

define invisible hand

Answer 12

unforeseen forces that move the free market economy, when individuals act in their own self interest it can benefit the society

Question 13

explain principle 7: governments can improve market outcomes

Answer 13

governments intervene in the market to promote efficiency and equity

Question 14

define market failure

Answer 14

when markets fail to allocate resources carefully

Question 15

reasons for market failure

Answer 15

1. externalities
2. market power

Question 16

define externalities

Answer 16

the impact of one person’s actions on the well-being of a bystander

Question 17

define market power

Answer 17

the influence a person or group has on the market price

Question 18

explain principle 8: a country’s standard of living depends on its ability to produce goods and services

Answer 18

the changes in a country’s income is directly linked to its productivity. when productivity increases the standard of living increases

Question 19

define productivity

Answer 19

the amount of goods and services produced from each hour of a worker’s time

Question 20

how can policymakers increase productivity

Answer 20

ensuring workers are well educated, have the tools required, and have access to high-tech

Question 21

explain principle 9: prices rise when the government prints too much money

Answer 21

more creation of money, the more its value fails

Question 22

define inflation

Answer 22

increase in the overall levels of prices in the economy

Question 23

explain principle 10: society faces a short-term tradeoff between inflation and unemployment

Answer 23

prices are slow to adjust so when inflation decreases unemployment increases. when the quantity of money decreases people spend less so firms earn less money needing to cut down costs such as labor costs