Chapter 1: Ten principles of Economics Flashcards
The term for “limited nature of society’s resources”
scarity
the term for how society manages it scarce resource is..
economics
What is principle one?
People face trade-offs
“Society is getting the maximum benefits from its scarce resources” is called
efficiency
“Benefits are distributed uniformly among society’s members” is called
equality
What is principle two?
The cost of something is what you give up to get it
“What you give up to get something” is called
opportunity cost
What is principle three?
Rational people think at the margin
“A small incremental adjustment to a plan of action” is called
marginal change
Rational people make decisions by comparing what two things?
marginal benefit and marginal cost
Margin also means…
edge
What does thinking at the margin mean?
Evaluating whether are not an action will exceed the marginal cost of something and hence become a marginal benefit
What is the marginal cost of streaming a movie on netflix?
Zero; you can stream as many movies as you wanted because you already paid the monthly fee.
What is principle four?
People respond to incentives
“Something that induces a person to act (punishment or reward” is called..
incentive
What is principle five?
Trade can make everyone better off
What is principle six?
markets are usually a good way to organize economic activity
“Economy that uses the decision of many firms and households to allocate resources as they interact in markets for goods and services” is called…
market economy
What is principle seven?
Governments can sometimes improve market outcomes
“The ability of an individual to own and exercise control over scarce resources” is called
property rights
Why do we still need the government if the market can improve economic activity?
The government plays an important role in enforcing rules and maintaining institutions; aka police or courts
“A situation in which a market left on its own fails to allocate resources efficiently” is called
market failure
The impact of one person’s actions on other being is called
externality
The ability of a single economic actor to have powerful influence on market prices is called
market power
What are two possible causes of market failure?
externality and market power
What calls for government intervention in a market economy?
inequality
What is principle eight?
A country’s standard of living depends on its ability to produce goods and services
What explains the large difference in living standards among countries and over times?
productivity
The quantity of goods and services produced from each unit of labor input is called
productivity
What is principle nine?
Prices rise when the government prints too much money
An increase in the overall level of prices in the economy is called…
inflation
What is principle 10?
Society faces a short-run Trade off between inflation and unemployment
Fluctuations in economic activity, such as employment and production is called
business cycle
