Chapter 1

Question 1

1st Principle

Answer 1

People Face Trade offs
efficiency: producing more of a good in an hour
Equity: promotes economic prosperity between two workers not of the same efficiency

Question 2

2nd Principle

Answer 2

Opportunity cost: what ever must be given up to obtain something,

Question 3

3rd Principle

Answer 3

Rational people: they think at the margin. marginal cost and benefit.

Question 4

4th Principle

Answer 4

Incentive: People respond to incentive.
Ex. making more or less profit on fixing a transmission

Question 5

5th principle

Answer 5

Trade is beneficial
- it allows us to consume more goods

Question 6

6th Principle

Answer 6

markets affectively organize economic activity
-market economies distribute resources through decentralized decisions of firms and households as they interact w/ markets
-Adam smiths invisible hand-

Question 7

7th Principle

Answer 7

governments sometimes improve market outcomes
Property rights: individuals have control over scarce resources
intervene
promote efficiency: Market Failure, market power, externality
Promote equity

Question 8

8th Principle

Answer 8

Productivity
a countries standard of living is affected by the amount of goods an services they can supply. can be measured in the hour worked.

Question 9

9th Principle

Answer 9

Inflation: increase in over price in an economy.
ex. government prints to much money and causes inflation.

Question 10

10th Principle

Answer 10

society faces a short run trade off between inflation and unemployment
Business cycle: irregular and unpredictable fluctuations in economic activity, measured by production of goods and services or number of people employed.
note: short run trade off plays a key role in the analysis of business cycle.