Chapter 1: The Big Ideas of Economics

Question 1

What is Economics?

Answer 1

A way of thinking that can help you understand careers, politics, families and almost every aspect of your life

Question 2

Households

Answer 2

A household must decide what jobs will be done and who will do them. (Who cooks, who cleans)

Must also decide what is consumed and who gets to consume it. (who gets the new phone, who gets the last piece of cake)

Question 3

Society

Answer 3

Must decide what jobs will be done and who will do them (who will make cars, educate)

Must decide what is consumed and who gets to consume it. (who gets to live in a large house vs small home)

Question 4

Scarcity or Scare resources

Answer 4

Occurs when the available quantity of resources is insufficient to fulfill all desired purposes.

Question 5

Microeconomics

Answer 5

Microeconomics is concerned with the actions of individual decision-makers, such as households and businesses.

Question 6

Macroeconomics

Answer 6

Macroeconomics looks at the economy as a whole, examining large-scale forces such as unemployment, inflation, and economic growth.

Question 7

Trade-offs

Answer 7

Nothing is free; gaining one benefit often requires losing another

Question 8

Opportunity Cost

Answer 8

the loss of potential gain from other alternatives when one alternative is chosen.

Question 9

Thinking on the margin

Answer 9

Decisions often involve “how much” rather than “either-or”

Question 10

Incentives

Answer 10

People respond to incentives, which can be positive(rewards) or negative(punishments)

Question 11

Trade can make everyone better off

Answer 11

Trade between countries leads to specialization and access to a variety of goods/services at lower costs. It’s about partnership, not competition.

Question 12

Market Economy

Answer 12

In a market economy, resources are allocated through decentralized decisions made by many businesses and individuals.

Question 13

Business cycles

Answer 13

Economies experience cycles of growth and decline. Policies (monetary and fiscal) can help manage these fluctuations.

Question 14

Stabilization Tools

Answer 14

Instruments like Employment Insurance can provide support during downturns.

Question 15

Inflation

Answer 15

Caused by an excessive money supply leading to too much money chasing too few goods. Central banks control money supply to maintain stable inflation rates.

Question 16

Hyperinflation Risks

Answer 16

Excessive inflation can lead to severe economic consequences, as seen in countries like Venezuela.

Question 17

Phillips Curve

Answer 17

Illustrates the tradeoff between inflation and unemployment; policies can stimulate one at the expense of the other.

Question 18

Policy Balance

Answer 18

Central banks must carefully manage the relationship between employment levels and inflation rates.