Chapter 1 Flashcards
Scarcity
-Resources are scarce
-Society has limited resources and, therefore, cannot produce all the goods and services people want
Economics
-The study of how society manages its scarce resources
Efficiency
-Society is getting the most it can from its scarce resources
-The size of the economic pie
Equality
-Distributing economic prosperity uniformly among the members of society
-How evenly the pie is divided into individual slices
Opportunity Cost
-Whatever must be given up to obtain some item
People face trade-offs and need to:
-Compare costs and benefits of alternatives
-Include opportunity costs
Marginal change
-Small incremental adjustments to a plan of action
Rational people
-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
Market Economy
-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
Economics is best defined as the study of?
How society manages its scarce resources
Your opportunity cost of going to a movie is?
The total cash expenditure needed to go to the movie plus the value of your time.
A marginal change is one that?
Incrementally alters an existing plan.
Because people respond to incentives,
-policymakers can alter outcomes by changing punishment or rewards
-policies can have unintended consequences
-society faces a trade off between efficiency and equality
International trade benefits a nation when…
All nations are specializing in producing what they do best.
Adam Smith’s “invisible hand” refers to…
The ability of free markets to reach desirable outcomes, despite the self-interest of market participants
Governments may intervene in a market economy in order to…
-protect property rights
-correct a market failure due ti externalities
-achieve a more equal distribution of income
The main reason that some nations have higher average living standards than others is that…
some nations have higher levels of productivity
If a nation has high ad persistent inflation, the most likely explanation is…
The central bank creating excessive amounts of money.
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.
Lower; higher