Chapter 1

Question 1

scarcity

Answer 1

the limited nature of society’s resources

Question 2

economics

Answer 2

the study of how society manages its scarce resources

Question 3

efficiency

Answer 3

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

Question 4

equality

Answer 4

the property of distributing economic prosperity uniformly among the members of society

Question 5

opportunity cost

Answer 5

whatever must be given up to obtain some item

Question 6

rational people

Answer 6

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

Question 7

marginal change

Answer 7

a small incremental adjustment to a plan of action

Question 8

incentive

Answer 8

something that induces a person to act

Question 9

market economy

Answer 9

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

Question 10

property rights

Answer 10

the ability of an individual to own and exercise control over scarce resources

Question 11

market failure

Answer 11

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

Question 12

externality

Answer 12

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

Question 13

market power

Answer 13

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

Question 14

productivity

Answer 14

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

Question 15

inflation

Answer 15

an increase in the overall level of prices in the economy

Question 16

business cycle

Answer 16

fluctuations in economic activity, such as employment and production

Question 17

Ten principles of economics

Answer 17

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
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 trade-off between inflation and unemployment