chapter 1 Flashcards
Give 3 examples of important tradeoffs that you face in your life
- time
2. spending money
What is the opportunity cost of seeing a movie
monetary cost of admission + time cost of going to the theater.
The time cost depends on what what else you might do with your time(stay home and watching tv, the time cost is small) but if working an extra 3 hours at a job, the time cost is the money you could’ve earned
Water is necessary for life. is this marginal benefit of a glass of water large or small?
it depends on your circumstances. If you have just run a marathon or have been walking in a desert the marginal beneift is very high.
but if you have been drinking a lot of liquids lately the marginal benefit is quite low.
why should policymakers think about incentives?
so they can understand how people will respond to the policies they put in place.
they can have quite unintended consequences. ie seat belt
why isn’t trade amoung countries like a game, with some winners and some losers
trade can make everyone better offf
- each are allowed to specialize in what they do best
this can improve everyone’s life
what does the invisible hand of the market place do
represents the idea that even though individuals and firms are all acting in their own self-interst, prices and the marketplace guide them to do what is good for society as a whole
expalin the two main causes of market failure and give an example of each
- externality
- market power
externality - the impact ofone person’s actions on the well being of a bystander, such as from pollution or the creation o fknowledge
Market power - refers to the ability fo a single person (or small group of people) to unduly influence makret prices, such as in a towm with only one well or only one cable television co.
in addition market economy also leads to unequal distribution of income
why is productivity important
a country’s standard of living depends on its ability to produce goods and services.
the greater a country’s productivity (the amount of goods and services produced from each hour of a worker’s time), the greater will be its standard of living
what is inflation, and what causes it
inflation is an increase in the overall level of prices in the economy
- caused by increases in the qty of a nation’s money
- inflation and unemployment are negatively related in the short run. reducing inflation entails costs to society in the form of higher unemployment in the short run
