Chapter 1

Question 1

Every choice involves a trade-off. To obtain something, one must give up something else. This principle is illustrated by the concept of what? and define what that concept means.

Answer 1

opportunity cost - which is the value of the next best alternative forgone when a decision is made

Question 2

The cost of something is what?

Answer 2

what you give up to get it
The true cost of something is not just the monetary price but also the opportunity cost. understanding this helps individuals and policymakers make informed decisions

Question 3

Rational people thing at what?

Answer 3

Rational people think at the margin

Question 4

What does rational people think at the margin mean

Answer 4

Rational decision-makers weigh the marginal benefits and marginal costs of an action. They make decisions based on incremental changes rather than on total costs and benefits

Question 5

Provide an example of rational people thinking at the margin

Answer 5

A student deciding whether to study for an extra hour will compare the benefits of improved grades against the cost of not having that hour for leisure.

Question 6

What do people respond to

Answer 6

incentives

Question 7

explain what it means that people respond to incentives

Answer 7

People’s behavior changes in response to incentives. This principle explains how incentives, both positive and negative, can influence economic decisions.

Question 8

Provide an example of people respond to incentives

Answer 8

A higher price for a product may encourage producers to supply more of it, and a tax on cigarettes might discourage smoking.

Question 9

What can trade do for people

Answer 9

make everyone better off

Question 10

Explain the principle trade can make everyone better off

Answer 10

Trade allows individuals and nations to specialize in what they do best and enjoy a greater variety of goods and services. It is mutually beneficial when parties trade based on comparative advantage.

Question 11

Provide an example of the principle trade can make everyone better off

Answer 11

Countries benefit from trade by importing goods that they cannot produce efficiently and exporting goods they produce well.

Question 12

Fill in the blank. Markets are usually a good way to…..

Answer 12

organize economic activity

Question 13

Why are markets usually a good way to organize economic activity and provide an example

Answer 13

Markets, driven by the forces of supply and demand, allocate resources efficiently. This principle underscores the efficiency of market economies in promoting innovation and economic growth.

In a competitive market, prices adjust to reflect the supply and demand for goods and services.

Question 14

Explain why governments can sometimes improve Market outcomes

Answer 14

While markets are generally efficient, there are situations where government intervention can correct market failures and promote a more equitable society.

Question 15

Provide an example of why government can sometimes improve market outcomes

Answer 15

Government regulation can address externalities like pollution or provide public goods like national defense.

Question 16

A country’s standard of living depends on what

Answer 16

it’s ability to produce goods and service

Question 17

Why does a country’s standard of living depend on its ability to produce goods and services

Answer 17

The standard of living in a country is linked to its productivity. Higher productivity leads to higher incomes and a better standard of living.

Example: Technological advancements that increase productivity lead to higher wages and improved living standards.

Question 18

Explain why prices rise when the government prints too much money

Answer 18

Inflation occurs when there is too much money in the economy relative to the supply of goods and services. This principle explains the relationship between money supply and price levels.

Example: Hyperinflation in historical contexts demonstrates the effects of excessive money printing.

Question 18

How does society face a short-run trade-off between inflation and unemployment

Answer 18

In the short run, there is a trade-off between inflation and unemployment. Policies that reduce inflation might increase unemployment and vice versa.

Example: The Phillips Curve illustrates this trade-off, showing that policies aimed at reducing inflation can lead to higher unemployment.

Question 18

Prices rise when governments do what

Answer 18

print too much money

Question 19

Scarcity

Answer 19

the limited nature of society’s resources

Question 19

Economics

Answer 19

the study of how society manages its scare resources

Question 20

Efficiency

Answer 20

the property of society getting the most it can from its scarce resources

Question 21

Equity

Answer 21

The property of distributing economic prosperity fairly among the members of society

Question 22

Rational people

Answer 22

people who systematically and purposefully do the best they can to achieve their objectives

Question 23

marginal changes

Answer 23

small incremental adjustments to a plan of action

Question 24

Incentive

Answer 24

something that induces a person to act

Question 25

Market economy

Answer 25

an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

Question 26

Inflation

Answer 26

an increase in the overall level of prices in the economy

Question 27

Business cycle

Answer 27

fluctuations in economic activity, such as employment and production

Question 28

What are the 10 principles of economics

Answer 28

1. People face tradeoffs
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
5. Trade can make everyone better off
6. Markets are usually a good way to organize economic activity
7. Governments can sometimes improve market outcomes
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 tradeoff between inflation and unemployment

Question 29

What is market failure

Answer 29

when the market fails to allocate society’s resources efficiently

Question 30

What are the causes of market failure

Answer 30

1. Externalities
2. Market power

Question 31

What are the externalities that can cause market failure

Answer 31

when the production or consumption of a good affects bystanders ( ie. pollution)

Question 32

What does it mean when market power causes market failure

Answer 32

a single buyer or seller has substantial influence on market price (e.g. monopoly)

Question 33

what can public policy promote

Answer 33

market efficiency

Question 34

define productivity

Answer 34

the amount of goods and services produced per unit of labour

Question 35

what does productivity depend on

Answer 35

equipment, skills and technology available to workers

Question 36

What is inflation

Answer 36

increases the general level of prices

Question 37

in the long run, what is inflation almost always caused by

Answer 37

excessive growth in the quantity of money, which causes the value of money to fall

Question 38

What happens to the inflation rate when the government creates money

Answer 38

the faster the gov creates money, the greater the inflation rate