Chapter 1 - First Principles Flashcards
Why are choices necessary
Because resources are scarce
What is the true cost of something
Its opportunity cost
What do people respond to
Incentives, and exploiting opportunities to make themselves better off
What do gains arise from
Specialization
What do markets always move toward
Equilibrium
How should resources be used to achieve society’s goals
Efficiently
Equity and efficacy are often at what
Odds
What happens when markets don’t lead to efficiency
Government can intervene and improve society’s welfare
Why do markets fail
Side effects that are not taken into account, avoiding mutually beneficial trades, and some goods cannot be managed by markets
One persons spending is what
Another persons income
What happened when spending gets out of line with the economies productive capacity
Government policy to change spending
What leads to economic growth over time
Increases in the economy’s potential
