Chapter 1 Flashcards
Efficiency
The property of society getting the most it can from its scarce resources
Equity
The property of distributing economic prosperity fairly among the members of society
Economy is Greek for
One who manages a household
Scarcity
Limited nature of society’s resources
Economics
The study how society manages it scarce resources
Equity
The property of distributing economic prosperity fairly among the members of society
Opportunity cost
Whatever must be given up to obtain some item
Rational people
People who do things purposefully to do the best they can to achieve their objectives
Marginal changes
Small incremental adjustments to plan of action
Incentive
Something that induces a person to act
Property rights
The ability of an individual to own and exercise control over scarce resources
Market economy
An economy that allocates resources through the decentralized decisions of many firms and households as they interact with markets for goods / services
2 reasons for government
1) to enforce property rights
2) because the invisible hand is not omnipotent
2 broad reasons for the government to intervene in the economy
To promote efficiency
To promote equity
Market failure
A situation in which a market left on its own fails to allocate resources efficiently
Externality
The impact of one persons actions on the well being of a bystander
Negative: pollution
Positive: education
Market power
The ability of a single economic actor to have substantial influence on market prices
Productivity
The quantity of goods and services produced from each hour of a workers time
Inflation
An increase in the overall level of prices in the economy
Principle #1-10
Don’t know if you need to memorize these, but be aware of them
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
