Chapter 1: Ten Principles of Economics Flashcards
What is the Greek word of Economy?
oikonomos
“One who manages a household”
Economy
What do households and economies have much in common?
- they face many decisions
- they try to allocate scarce resources
society has limited resources and therefore cannot produce all the goods and services people wish to have
Scarcity
the study of how society manages its scarce resources
Economics
How are are resources allocated by the society usually?
Not by an all-powerful dictator but through the combined choices of millions of households and firms.
people who study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings
Economists
people who study peers interact with each other
Economists
Examples of Economists:
- 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
What are the 4 Principles about Individual Decision Making?
- People Face Trade-offs
- The Cost of Something is What You Give up to Get It
- Rational People Think at the Margin
- People Respond to Incentives
- “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
Principle 1: People Face Trade-offs
What does trade-off society face?
Efficiency and Equality
society is getting the maximum benefits from its scarce resources
Efficiency
the benefits are distributed uniformly among society’s members
Equality
in metaphorical words, ________ refers to the size of the economic pie
Efficiency