Exam 1 Flashcards
How the economy as a whole works (principles)
- 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
How People interact (Principles)
- trade can make everyone better off
- markets are usually a good way to organize economic activity
- Governments can sometimes improve market outcomes
Scarcity
The limited nature of society’s resources
Economics
The study of how society manages its scarce resources
Efficiency
Getting the most out of scarce resources
Equality
Distributing economic prosperity uniformly among the members of society
Opportunity cost
Whatever must be given up to obtain some item
Rational people
People who systematically and purposefully do the best they can to achieve their objectives
Marginal change
A small incremental adjustment to a plan of action
Incentive
Something that induces a person to act
Market economy
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
The ability of an individual to own and exercise control over scarce resources
Market failure
A situation in which a market left on its own fails to allocate resources efficiently
Externality
The impact of one person’s actions on the well-being of a bystander
Market Power
The ability of a single economic actor to have a substantial influence on market prices
Productivity
The quantity of goods and services produced from each unit of labor input
Inflation
An increase in the overall level of prices in the economy
Business cycle
Fluctuations in economic activity, such as employment and production
The science of economics is more difficult because…
Economist can only use historical observations to study and test hypothesis.
Economist as scientist…
- use specialized language
- employ the scientific method
- use models to solve problems
Models are…
Simplifications of reality.
Assumptions are made to…
Simplify reality
The art of thinking is…
Making the right assumptions
This type of graph provides a graphical representation of goods and dollars flow in an economy.
Circular Flow Diagram
