Chapter 1 - Ten Principles of Economics

Question 0

Scarcity

Answer 0

the limited nature of society’s resources

Question 1

Origin of the word economy

Answer 1

from the Greek word oikonomos, which means, “one who manages a household”

Question 2

Economics

Answer 2

the study of how society manages its scarce resources

Question 3

Efficiency

Answer 3

the property of society getting the most it can from its scarce resources.

Question 4

Equality

Answer 4

the property distributing economic prosperity uniformly among the members of society.

Question 5

Principle 1

Answer 5

People face trade-offs.

Question 6

Principle 2:

Answer 6

the cost of something is what you give up to get it.

Question 7

Opportunity costs

Answer 7

whatever must be given up to attain some item.

Question 8

Principle 3:

Answer 8

rational people think at the margin.

Question 9

Rational people

Answer 9

people who systematically and purposefully do the best they can to achieve their objectives.

Question 10

marginal change

Answer 10

a small incremental adjustment to a plan of action.

Question 11

incentive

Answer 11

something that induces a person to act.

Question 12

Principle 4:

Answer 12

people respond to incentives.

Question 13

Principle 5

Answer 13

Trade can make everyone better off

Question 14

market economy

Answer 14

an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

Question 15

Principle 6

Answer 15

Markets are usually a good way to organize economic actvity

Question 16

Principle 7

Answer 16

Governments can sometimes improve market outcomes

Question 17

property rights

Answer 17

the ability of an individual to own and exercise control over scarce resources

Question 18

market failure

Answer 18

a situation in which a market left on its own fails to allocate resources efficiently

Question 19

externality

Answer 19

the impact of one person’s actions on the well-being of a bystander

Question 20

market power

Answer 20

the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

Question 21

Principle 8

Answer 21

A Country’s standard of living depends on its ability to produce goods and services

Question 22

productivity

Answer 22

the quantity of goods and services produced from each unit of labor input

Question 23

Principle 9

Answer 23

prices rise when the government prints too much money

Question 24

inflation

Answer 24

an increase in the overall level of prices in the economy

Question 25

Principle 10

Answer 25

Society faces a short-term trade-off between inflation and unemployment

Question 26

business cycle

Answer 26

fluctuations in economic activity, such as employment and production.