Chapter 1 - Ten Principles of Economics Flashcards
Economics
Economics is the study of how society manages its scarce resources.
Scarcity
Scarcity is the limited nature of society’s resources.
Efficiency
Efficiency is the property of society getting the most it can from its scarce resources.
Equality
Equality is the property of distributing economic prosperity uniformly among the members of society.
Opportunity Cost
Opportunity cost is whatever must be given up to obtain some item.
Rational People
Rational people are people who systematically and purposefully do the best they can to achieve their objectives.
Marginal Change
Marginal change is a small, incremental adjustment to a plan of action.
Incentive
An incentive is something that induces a person to act.
Market Economy
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.
Property Rights
Property rights is the ability of an individual to own and exercise control over scarce resources.
Market Failure
Market failure is a situation in which a market, left on its own, fails to allocate resources efficiently.
Externality
An externality is the impact of one person’s actions on the well-being of a bystander.
Market Power
Market power is the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices.
Productivity
Productivity is the quantity of goods and services produced from each unit of labor input.
Inflation
Inflation is an increase in the overall level of prices in the economy.
Business Cycle
The business cycle is the irregular and largely unpredictable fluctuations in economic activity, such as employment and production.
Give the four principles of economics that relate to how people make decisions.
- People face trade-offs
- The cost of something is what you give up to get it
- Rational people think at the margin
- People respond to incentives
Give the three principles of economics relating to how people interact.
- Trade can make everyone better off
- Markets are usually a good way to organize economic activity
- Governments can sometimes improve market outcomes
Give the three principles of economics relating to how the economy as a whole works.
- 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 trade-off between inflation and unemployment.
