Chapter 1 Flashcards
what is a resource
anything that can be used to produce something else.
what is scarce
a resource is scarce when there is not enough of the resource available to satisfy all the various ways a society wants to use it.
what is the first principle of individual choice
choices are necessary because resources are scarce
What is opportunity cost
what you must give up in order to get something
what is the second principle of individual choice
The true cost of something is the opportunity cost
define trade off
comparison of the costs and the benefits of doing something
what is the third principle of individual choice
“how much” is a decision at the margin
what is marginal decision
a decision made at the margins of an activity about whether to do a bit more or a bit less of that activity
what is marginal analysis
the study of marginal decisions
what is the fourth principle of individual choice
people respond to incentives, exploiting opportunities to make themselves better off
what is incentive
anything that offers rewards to people who change their behavior
what is the first principle of interaction of individual choice
there are gains from trade
trades allow
us to consume more than we otherwise could
when do gains from trade arise
from specialization
define the specialization
the situation in which each person specializes in the task that he or she is good at performing
what is the second principle of interaction of individual choice
markets move towards equilibrium
why do markets move towards equilibrium
because people respond to incentives
define equilibrium
an economic situation in which no individual would be better off doing something different
what is the third principle of interaction of individual choice
resources should be used efficiently to achieve society’s goals
when is an economy efficient
if it takes all opportunities to make some people better off without
define equity
a condition in which everyone gets his or hers “fair share”
are equity and efficiency often even or at odds
odds
people normally take opportunities to make __________ better off
themselves
what is the fourth principle of interaction of individual choice
markets usually lead to efficiency, but when they don’t governments intervention can improve societies’ welfare
what is the first principle of economy wide interactions
one persons spending is another persons income
what is the second economy ide interaction
overall spending sometimes gets out of line with the economy’s productive capacity; when it does, government policy can change spending
When the overall spending falls short of what is needed to keep workers employed, the economy experiences __________
recession
When overall spending outstrips the supply, the economy experiences __________
inflation
When the economy experiences shortfalls or excesses in spending, government ________ can be used to address the imbalances
policies
what is economic growth
the increase in living standards over time
what is the economy’s potential
the total amount of goods and services it can produce
what is the third principle of economy wide interaction
increases in the economies potential leads to economic growth over time
Does emergence of new technology increase economic growth or economy’s potential?
Both! Emergence of new technologies and increases in resources available for production boost the economy’s potential, hence living standards.
what is micro economics
a study of how individuals make decisions
what are the two types of decisions we can have
either-or and how many(marginal)
what is an example of a sunk cost
paying for a 1 month subscription, doesnt matter how much you use it, you are paying the same amount of money
what are the 3 main types of economys
centrally planned
market economy
modern mixed economy
centrally planned economy vs market economy
centrally planned: pre set quantity, no interaction, government decides.
market economy: totally depends on interaction, no government decision
