Chapter 1 - Ten Principles of Economics Flashcards
What are the ten principles?
- People face tradeoffs
- The cost of something is what you give up to get it
- Rational people think at the margin
- People respond to incentives
- Trade can make everyone better
- Markets are usually a good way to organize economic activity
- Governments can sometimes improve market outcomes
- A country’s standard of living depends on its ability to produce goods and services
- Prices rise when the government prints too much money
- Society faces a short-run tradeoff between inflation and unemployment
Scarcity
The limited nature of society’s resources.
Economics
The study of how society manages its scarce resources.
Efficiency
The property of society getting the most it can from its scarce resources.
Equity
The property of distributing economic prosperity fairly among members of society.
Opportunity Cost
Whatever must be given up to obtain some item.
Rational People
Those who systematically and purposefully do the best they can to achieve their objectives.
Marginal Changes
Small incremental adjustments to a plan of action.
Incentive
Something that induces a person to act (ex. Reward or punishment)
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.
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.
Productivity
The quantity of goods and services produced from each hour of a worker’s time.