Chapter 1 Flashcards
Scarcity
Resources are limited and therefore society cannot produce all the goods and services people wish to have
Economics
Study of how society manages its scarce resources
Principle 1
People face tradeoffs
Efficiency
Society getting the most it can from its scarce resources
Equity
Distribution of economic prosperity among members of society
Principle 2
Costs of something is what you give up to get it
Opportunity cost
Whatever must be given up to obtain some item
Principle 3
Rational people think at the margin
Rational people
Those who systematically & purposefully do the best they can to achieve their objectives
Marginal changes
Small increment adjustments to a plan of action
Principle 4
People respond to incentives
Incentive
Something that induces a person to act
Principle 5
Trade can make everyone better off
Principle 6
Markets are usually a good way to organize economic activity
Market economy
Economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
Principle 7
Governments can sometimes improve market outcome
Property rights
Ability of an individual to own and exercise control over scarce resources
What does the government do to improve market outcome
Enforce property rights
Intervene in the economy
Productivity
Output per unit of input
Inflation
An increase in the overall level of prices in the economy
