Chapter 1: Ten Principles of Economics Flashcards

1
Q

What is the Greek word of Economy?

A

oikonomos

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2
Q

“One who manages a household”

A

Economy

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3
Q

What do households and economies have much in common?

A
  • they face many decisions

- they try to allocate scarce resources

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4
Q

society has limited resources and therefore cannot produce all the goods and services people wish to have

A

Scarcity

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5
Q

the study of how society manages its scarce resources

A

Economics

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6
Q

How are are resources allocated by the society usually?

A

Not by an all-powerful dictator but through the combined choices of millions of households and firms.

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7
Q

people who study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings

A

Economists

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8
Q

people who study peers interact with each other

A

Economists

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9
Q

Examples of Economists:

A
  • they examine how the multitude of buyers and sellers of a good together determined the price at which the good is sold and the quantity is solved
  • analyze the forces and trends that affect the economy as a whole, including the growth average income, the fraction of the population that cannot find work, and the rate at which prices are rising
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10
Q

What are the 4 Principles about Individual Decision Making?

A
  1. People Face Trade-offs
  2. The Cost of Something is What You Give up to Get It
  3. Rational People Think at the Margin
  4. People Respond to Incentives
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11
Q
  • “There is no such thing as free lunch”
  • to get something we like, we usually have to give up something else that we also like
  • making decisions requires trading off one goal against another
A

Principle 1: People Face Trade-offs

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12
Q

What does trade-off society face?

A

Efficiency and Equality

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13
Q

society is getting the maximum benefits from its scarce resources

A

Efficiency

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14
Q

the benefits are distributed uniformly among society’s members

A

Equality

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15
Q

in metaphorical words, ________ refers to the size of the economic pie

A

Efficiency

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16
Q

in metaphorical words, ________ refers to how the pie is divided into individual slices

A

Equality

17
Q
  • making decisions requires comparing the costs and benefits of alternative courses of action
A
  1. The Cost of Something is What You Give up to Get It
18
Q

whatever must be given up to obtain some item

A

Opportunity Cost

19
Q
  • people who systematically and purposefully do the best they can to achieve their objectives, given the available opportunities
  • know that decisions in life are rarely black and white but usually involve shades of grey
A

Rational People

20
Q

a small incremental adjustment to an existing plan of action

A

Marginal Change

21
Q

“edge”

A

margin

22
Q

rational people often make decisions by comparing marginal benefits and marginal costs

A
  1. Rational People Think at the Margin