Chapter 1: Ten Principles of Economics

Question 1

Define ‘Scarcity’.

Answer 1

The limited nature of society’s resources.

Question 2

Define ‘Economics’.

Answer 2

The study of how society manages its scarce resources.

Question 3

Define ‘Efficiency’.

Answer 3

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

Question 4

Define ‘Equity’.

Answer 4

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

Question 5

Define ‘Opportunity cost’.

Answer 5

Whatever must be given up to obtain some item.

Question 6

Define ‘Rational people’.

Answer 6

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

Question 7

Define ‘Marginal changes’.

Answer 7

Small incremental adjustments to a plan of action.

Question 8

Define ‘Incentive’.

Answer 8

Something that induces a person to act.

Question 9

Define ‘Market economy’.

Answer 9

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

Question 10

Define ‘Property rights’.

Answer 10

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

Question 11

Define ‘Market failure’.

Answer 11

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

Question 12

Define ‘Externality’.

Answer 12

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

Question 13

Define ‘Market power’.

Answer 13

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

Question 14

Define ‘Productivity’.

Answer 14

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

Question 15

Define ‘Inflation’.

Answer 15

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

Question 16

Define ‘Business cycle’.

Answer 16

Fluctuations in economic activity, such as employment and production.

Question 17

What are the 10 principles of economics?

Answer 17

How people make decisions:
1. People face trade-offs.
2. The cost of something is what you give up to get it.
3. Rational people think on the margin.
4. People respond to incentives.
How people interact:
5. Trade can make everyone better off.
6. Markets are usually a good way to organize economic activity.
7. Governments can sometimes improve market outcomes.
How the economy as a whole works:
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 trade-off between inflation and unemployment.

Question 18

Define ‘Ceteris paribus’. (From videos)

Answer 18

Used to describe other variables remaining fixed and unchanged.