Chapter 1 - Ten Principles of Economics Flashcards
What is economics?
Economics is the study of how society manages its scarce resources.
What are scarce resources?
Limited/not enough resoruces to fulfill growing/unlimited wants.
What is a trade-off?
A trade-off involves giving something up to gain something we really want/like.
Explain the Guns and Butter analogy
The more society spends on national defense (guns), the less it can spend on consumer goods (butter).
What is efficiency?
Efficiency means society is getting maximum benefits from scarce resources.
What is equality?
Equality means that the benefits coming from scarce resources are distributed uniformally among society’s members.
What are incentives?
Incentives are things that induce people to act.
Who responds to incentives?
Rational people
What kind of incentive do hgiher prices in a market give to buyers and sellers?
The incentive for buyers is to consume less and for sellers to produce more.
What is opportunity cost?
The cost of whatever must be given up in order to obtain another item.
What do rational people do economically do?
Rational people systematically and purposefully do the best they can do to achieve their objectives, given the availiable resources.
What is marginal change?
Marginal change describes a small incremental adjustment to a plan of action.
A rational decision maker takes an action if and only if…
the marginal benefit exceeds the marginal cost.
What are market economies?
Market economies allocate resources through decentralized decisions of many firms andn households as they interact in markets for goods and services.
What do firms do in a market economy?
Firms decide whom to hire and what to make.
