Chapter 1 Flashcards
Economics
Studies how society manages its scarce resources
Economists
Study how people make decisions about buying, selling and investing
Principles of How People Make Decisions
1- People face trade offs
2- The cost of something is what you give up to get it
3- Rational People think at the margin
4-People respond to incentives
Principles of How People Interact
5- Trade can make everyone better off
6- Markets are usually a good way to organize economic activity.
7- Goverbmenys can improve market decisions
Principles of How Economy as a whole works
8- A country’s standard of living depends on its ability to produce goods and services
9- Prices rise when the government prints too much money
10- Society faces a short run trade off betwwen inflation and unemployment
Efficiency
Getting the most from a scarce resource
Equality
Distributing benefits uniformly across society
Opportunity Cost
What you give up to get something
Marginal Change
Incremental change to an existing plan. Rational decision is when you proceed if the marginal benefit exceeds the marginal cost.
Incentive
Something that induces people to act.
Trade
Allows each person to specialized in what they do best and trade the output for the outpout of other producers.
Interact in the makertplace where prices and quantities are determined
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Firms and households
Invisible Hand
Prices generated by competitive activity signal the value of costs and benefits to producers and consumers, whose activities usually maximize the well-being of society.
Prices by central planers
Fail to guide economic activity
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-Externality
-Market Power
