Chapter 1 - Ten Principles of Economics

Question 0

Economics

Answer 0

Economics is the study of how society manages its scarce resources.

Question 1

Scarcity

Answer 1

Scarcity is the limited nature of society’s resources.

Question 2

Efficiency

Answer 2

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

Question 3

Equality

Answer 3

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

Question 4

Opportunity Cost

Answer 4

Opportunity cost is whatever must be given up to obtain some item.

Question 5

Rational People

Answer 5

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

Question 6

Marginal Change

Answer 6

Marginal change is a small, incremental adjustment to a plan of action.

Question 7

Incentive

Answer 7

An incentive is something that induces a person to act.

Question 8

Market Economy

Answer 8

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

Question 9

Property Rights

Answer 9

Property rights is the ability of an individual to own and exercise control over scarce resources.

Question 10

Market Failure

Answer 10

Market failure is a situation in which a market, left on its own, fails to allocate resources efficiently.

Question 11

Externality

Answer 11

An externality is the impact of one person’s actions on the well-being of a bystander.

Question 12

Market Power

Answer 12

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

Question 13

Productivity

Answer 13

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

Question 14

Inflation

Answer 14

Inflation is an increase in the overall level of prices in the economy.

Question 15

Business Cycle

Answer 15

The business cycle is the irregular and largely unpredictable fluctuations in economic activity, such as employment and production.

Question 16

Give the four principles of economics that relate to how people make decisions.

Answer 16

1. People face trade-offs
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

Question 17

Give the three principles of economics relating to how people interact.

Answer 17

1. Trade can make everyone better off
2. Markets are usually a good way to organize economic activity
3. Governments can sometimes improve market outcomes

Question 18

Give the three principles of economics relating to how the economy as a whole works.

Answer 18

1. A country’s standard of living depends on its ability to produce goods and services.
2. Prices rise when the government prints too much money.
3. Society faces a short-run trade-off between inflation and unemployment.