Chapter 1 - Ten Principles of Economics Flashcards
Scarcity
the limited nature of society’s resources
Origin of the word economy
from the Greek word oikonomos, which means, “one who manages a household”
Economics
the study of how society manages its scarce resources
Efficiency
the property of society getting the most it can from its scarce resources.
Equality
the property distributing economic prosperity uniformly among the members of society.
Principle 1
People face trade-offs.
Principle 2:
the cost of something is what you give up to get it.
Opportunity costs
whatever must be given up to attain some item.
Principle 3:
rational people think at the margin.
Rational people
people who systematically and purposefully do the best they can to achieve their objectives.
marginal change
a small incremental adjustment to a plan of action.
incentive
something that induces a person to act.
Principle 4:
people respond to incentives.
Principle 5
Trade can make everyone better off
market economy
an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
Principle 6
Markets are usually a good way to organize economic actvity
Principle 7
Governments can sometimes improve market outcomes
property rights
the ability of an individual to own and exercise control over scarce resources
market failure
a situation in which a market left on its own fails to allocate resources efficiently
externality
the impact of one person’s actions on the well-being of a bystander
market power
the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices
Principle 8
A Country’s standard of living depends on its ability to produce goods and services
productivity
the quantity of goods and services produced from each unit of labor input
Principle 9
prices rise when the government prints too much money
