Chapter 1 Flashcards

1
Q

Scarcity

A

-Resources are scarce

-Society has limited resources and, therefore, cannot produce all the goods and services people want

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2
Q

Economics

A

-The study of how society manages its scarce resources

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3
Q

Efficiency

A

-Society is getting the most it can from its scarce resources

-The size of the economic pie

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4
Q

Equality

A

-Distributing economic prosperity uniformly among the members of society

-How evenly the pie is divided into individual slices

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5
Q

Opportunity Cost

A

-Whatever must be given up to obtain some item

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6
Q

People face trade-offs and need to:

A

-Compare costs and benefits of alternatives

-Include opportunity costs

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7
Q

Marginal change

A

-Small incremental adjustments to a plan of action

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8
Q

Rational people

A

-Systematically and purposefully do the best they can to achieve their goals, given the available opportunities

-Make decisions by evaluating costs and benefits of marginal changes

-Take action if
—Marginal benefits > Marginal costs

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9
Q

Market Economy

A

-the decisions of a central planner are replaced by those of millions of firms and households

-Firms decide whom to hire and what to make

-Households decide where to work and what to buy with their incomes

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10
Q

Economics is best defined as the study of?

A

How society manages its scarce resources

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11
Q

Your opportunity cost of going to a movie is?

A

The total cash expenditure needed to go to the movie plus the value of your time.

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12
Q

A marginal change is one that?

A

Incrementally alters an existing plan.

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13
Q

Because people respond to incentives,

A

-policymakers can alter outcomes by changing punishment or rewards

-policies can have unintended consequences

-society faces a trade off between efficiency and equality

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14
Q

International trade benefits a nation when…

A

All nations are specializing in producing what they do best.

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15
Q

Adam Smith’s “invisible hand” refers to…

A

The ability of free markets to reach desirable outcomes, despite the self-interest of market participants

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16
Q

Governments may intervene in a market economy in order to…

A

-protect property rights

-correct a market failure due ti externalities

-achieve a more equal distribution of income

17
Q

The main reason that some nations have higher average living standards than others is that…

A

some nations have higher levels of productivity

18
Q

If a nation has high ad persistent inflation, the most likely explanation is…

A

The central bank creating excessive amounts of money.

19
Q

If a central bank uses the tools of monetary policy to reduce the demand for goods and services, the likely result is ____ inflation and ____ unemployment in the short run.

A

Lower; higher