Chapter 1

Question 1

Trade offs

Answer 1

People face trade offs when making decisions, in order to get something you should give something, it is the 1st principle of economics

Question 2

Efficiency

Answer 2

The property of society getting the most it can from its scarce resources, policies to promote efficiency tend to increase the pie, but make it unevenly distributed

Question 3

Equality

Answer 3

The property of distributing economic
prosperity uniformly among the members
of society, policies to promote equality tend to shrink the pie but make it more equally sliced

Question 4

Opportunity cost

Answer 4

Whatever must be given up to obtain some item, 2nd principle of economics

Question 5

Rational people

Answer 5

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

Question 6

Marginal change

Answer 6

A small incremental adjustment to a plan
of action

Question 7

Rational people think at the margin

Answer 7

Rational people take action if marginal benefits exceed the marginal costs, 3rd principle of economics

Question 8

Incentive

Answer 8

Something that induces a person to act

Question 9

People respond to incentives

Answer 9

Punishments or rewards may change how people act, so governments can influence people with different policies, 4th principle of economics

Question 10

Trade can make everyone better off

Answer 10

While trading you can get what you need while giving what you don’t need, it applies for both parties so everybody benefits, 5th principle of economics

Question 11

Market economy

Answer 11

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

Question 12

Markets are a good way to organize economic activity (invisible hand)

Answer 12

Market economy relies on decisions of many buyers and sellers and eveybody thinks of their own profit only, but somehow overall the choices favor the society. That’s invisible hand in action. 6th principle of economics

Question 13

Governments can improve market outcomes

Answer 13

Through making policies which protect people in the market, government can improve the market outcomes, 7th principle of economics

Question 14

Market failure

Answer 14

A situation in which a market left on its own
fails to allocate resources efficiently

Question 15

Externality

Answer 15

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

Question 16

Market power

Answer 16

The ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

Question 17

8th principle of economics (standard of living)

Answer 17

Country’s standard of living depends on its ability to produce goods and services

Question 18

Productivity

Answer 18

The quantity of goods and services produced from each unit of labor input

Question 19

9th principle of economics (inflation)

Answer 19

Prices rise when government prints too much money as the value of a single banknote will go down, inflation is the increase in overall level of prices in the economy

Question 20

10th principle of economics, society faces short term trade off between unemployment and inflation

Answer 20

Prices rise in the long run when government prints too much money, but in the short run it increases overall spending in the market causing the firms to hire more people because of the rise in demand