Chapter 1

Question 1

Efficiency

Answer 1

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

Question 2

Equity

Answer 2

The property of distributing economic prosperity fairly among the members of society

Question 3

Economy is Greek for

Answer 3

One who manages a household

Question 4

Scarcity

Answer 4

Limited nature of society’s resources

Question 5

Economics

Answer 5

The study how society manages it scarce resources

Question 6

Equity

Answer 6

The property of distributing economic prosperity fairly among the members of society

Question 7

Opportunity cost

Answer 7

Whatever must be given up to obtain some item

Question 8

Rational people

Answer 8

People who do things purposefully to do the best they can to achieve their objectives

Question 9

Marginal changes

Answer 9

Small incremental adjustments to plan of action

Question 10

Incentive

Answer 10

Something that induces a person to act

Question 11

Property rights

Answer 11

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

Question 12

Market economy

Answer 12

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

Question 13

2 reasons for government

Answer 13

1) to enforce property rights

2) because the invisible hand is not omnipotent

Question 14

2 broad reasons for the government to intervene in the economy

Answer 14

To promote efficiency

To promote equity

Question 15

Market failure

Answer 15

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

Question 16

Externality

Answer 16

The impact of one persons actions on the well being of a bystander

Negative: pollution
Positive: education

Question 17

Market power

Answer 17

The ability of a single economic actor to have substantial influence on market prices

Question 18

Productivity

Answer 18

The quantity of goods and services produced from each hour of a workers time

Question 19

Inflation

Answer 19

An increase in the overall level of prices in the economy

Question 20

Principle #1-10

Don’t know if you need to memorize these, but be aware of them

Answer 20

1) people face trade offs
2) 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 standards of living depends on its ability to produce goods / services
9) prices rise when government print too much money
10) society faces a short term trade off