Economics Chapter One Quiz Flashcards
Economics:
The study of how people use scarce resources to satisfy their wants
First Principle of Economics:
How People Choose
Answer to how people choose:
People Economize, or choose based on the best combination of costs and benefits
Example for Principle One:
Pick’s tattoo story
Principle Two:
People’s Choices Involve Costs
Principle Two Continued:
Everything has a cost. “There is no such thing as a free lunch.”
Examples of Principle Two:
Loss could be in form of time, money, lost opportunities, or supplies
Principle Three:
People Respond to Incentives in Predictable ways
Incentives Principle Three:
A benefit offered to encourage people to act in a certain way (bribe)
Incentives of Producers and Consumers:
Producers: Want Highest Price
Consumers: Want Lowest Price
What determines if an incentive works?
Individuals self-interest/value
What will people find in incentives?
Loopholes
Real Cost (Relates to Second Principle)
The value of everything you give up by choosing one alternative over another. This takes into account everything that would’ve been chosen otherwise
Real Cost Examples:
Physical and Mental Effort By the Laborers
Opportunity Cost (Relates to Second Principle)
The value of the next best choice
Example of Opportunity Choice:
Sally can pick one banana or three fish. She chooses to pick the one banana. The opportunity cost is the three fish.
“OPEC”
Organization of Petroleum Exporting Companies
Fourth Principle:
Rules of the Game (People create economic systems influencing individual choices and incentives)
Economic System:
The way a society uses its resources to satisfy wants.
Google:
a means by which societies or governments organize and distribute available resources, services, and goods across a geographic region or country.
Rules of the Game (4) continued:
Incentives (laws) offered by the government (economic system) to encourage people to act a certain way). More rules, more loopholes. People continually find loopholes in the rules of the game that maximize their own benefit.
Example of Incentive Scheme (4):
Amsterdam used incentive scheme of property taxes. (More width = more money).
Fifth Principle of Economics:
People Gain when They Trade Voluntarily. Exchange something, (time) for something else that you value more, (money)
Good (Fifth Principle):
Something you buy
Service (Fifth Principle):
Work you can buy
