Chapter 1 - Ten Principles of Economics Flashcards

1
Q

What are the ten principles?

A
  1. People face tradeoffs
  2. The cost of something is what you give up to get it
  3. Rational people think at the margin
  4. People respond to incentives
  5. Trade can make everyone better
  6. Markets are usually a good way to organize economic activity
  7. Governments can sometimes improve market outcomes
  8. A country’s standard of living depends on its ability to produce goods and services
  9. Prices rise when the government prints too much money
  10. Society faces a short-run tradeoff between inflation and unemployment
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Scarcity

A

The limited nature of society’s resources.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Economics

A

The study of how society manages its scarce resources.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Efficiency

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Equity

A

The property of distributing economic prosperity fairly among members of society.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Opportunity Cost

A

Whatever must be given up to obtain some item.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Rational People

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Marginal Changes

A

Small incremental adjustments to a plan of action.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Incentive

A

Something that induces a person to act (ex. Reward or punishment)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Market Economy

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Property Rights

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Market Failure

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Externality

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Market Power

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Productivity

A

The quantity of goods and services produced from each hour of a worker’s time.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Inflation

A

An increase in the overall level of prices in the economy.

17
Q

Business Cycle

A

Fluctuations in economic activity, such as employment and production.

18
Q

Tradeoff

A

Giving something up to get something else.

19
Q

Marginal Benefit

A

The additional benefit you would get from an additional unit of the good.

20
Q

Marginal Cost

A

The additional cost of producing an extra unit.

21
Q

Invisible Hand

A

Created by Adam Smith. Forces that drive the economy in a market economy.