Lesson 1

Question 1

principle 1

Answer 1

people face trade-offs

Question 2

principle 2

Answer 2

the cost of something is what you give up to get it

Question 3

principle 3

Answer 3

ration people think at the margin (how many scoops of icecream)

Question 4

principle 4

Answer 4

people respond to incentives

Question 5

efficiency

Answer 5

society gets the most from scarse resource

Question 6

equity

Answer 6

the benefits of resources are fairly distributed among members of society

Question 7

marginal changes

Answer 7

small, incremental adjustments to an existing plan of action (ice cream)

Question 8

principle 5

Answer 8

trade can make everyone better off

Question 9

principle 6

Answer 9

markets are usually a good way to organize economic activity

Question 10

principle 7

Answer 10

governments can sometimes improve economic outcomes

Question 11

market economy

Answer 11

allocates resources through the decentralized decision of many as they interact in markets

Question 12

property rights

Answer 12

ability of an idividual to own and exercise control over a scarse resource

Question 13

market failure

Answer 13

when market fails to allocate resources efficiently

Question 14

cause of market failure

Answer 14

externality and market power

Question 15

microeconomics

Answer 15

focuses on individual part of the economy (how do individuals behave and interact in a particular market)

Question 16

macroeconomics

Answer 16

looks at economy as whole (many markets that have interaction)

Question 17

principle 8

Answer 17

a country’s standard of living depends on its ability to produce goods and services

Question 18

principle 9

Answer 18

prices rise when the government prints too much money

Question 19

principle 10

Answer 19

society faces a short-run trade-off betwen inflation and unemployment

Question 20

economic growth

Answer 20

the increase in the amount of goods and services in an economy over a period of time

Question 21

gross domestic product per head

Answer 21

the market value of all final goods and services produced within a country in a given period of time divided by the population of a country to give a per capita figure

Question 22

ways of measuring standards of living

Answer 22

compering personal incomes, compering the total market value of a nation’s production

Question 23

productivity

Answer 23

amount of goods and services produced from each hour of a worker’s time

Question 24

inflation

Answer 24

increase in the overall level of prices in the economy

Question 25

business cycle

Answer 25

fluctuations in economic activity, such as employment and production

Question 26

endogenous variable

Answer 26

a variable whose value is determined within the model (growth or GDP)

Question 27

exogenous variable

Answer 27

a variable whose value is determined outside the model

Question 28

circular-flow diagram

Answer 28

is a visual model of the economy that shows how dollars flow through markets among households and firms

Question 29

3 ways to measure GDP from circular-flow

Answer 29

production view how much demand how much income

Question 30

production possibilities frontier

Answer 30

shows the combinations of output that the economy can possibly produce given the available factorsof production and the available production technology