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Introduction to Economics > Ten Principles of Economics > Flashcards

Ten Principles of Economics Flashcards

To discuss the ten principles of economics and understand how each principle is vital in the decision-making process

1
Q

To get one thing we like, we have to ____ another thing

A

give up

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2
Q

What is the first principle?

A

People Face Trade-offs

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3
Q

What are the four principles of individual decision making?

A

people face trade-offs;
the cost of something is what you give up to get it;
rational people think at the margin;
people respond to incentives

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4
Q

What does a student need to trade-off?

A

time

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5
Q

What does a parent need to trade-off?

A

income

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6
Q

What is one classic trade-off mentioned in this resource material?

A

guns and butter

The more a society spends on its national defense, the less it can spend on raising the standards of living at home

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7
Q

It is an important trade-off in modern society.

A

clean environment and high level of income
Pollution regulations yield the benefit of a cleaner environment and improved health but it comes at a cost of reducing the incomes of regulated firms’ owners, workers and customers

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8
Q

Another trade-off in society

A

efficiency and equality

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9
Q

What is the property that the society gets the most it can from its scarce resources?

A

Efficiency

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10
Q

What is the property that ensures the members of society receives the benefits uniformly?

A

Equality

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11
Q

how the pie is divided into individual slices

A

Equality

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12
Q

size of the economic pie

A

Efficiency

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13
Q

What can the welfare system or unemployment insurance do?

A

help the members of the society who are in need

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14
Q

What can the individual tax income do?

A

ask the financially successful to contribute more than others to support the government

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15
Q

True or False:

When the government tries to cut the economic pie into more equal slices, the pie gets smaller

A

True because when the government redistributes income from the rich to the poor, it reduces the reward of working hard.

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16
Q

Our study of economics starts by ___________

A

acknowledging life’s trade-offs

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17
Q

True or False

Recognizing that people make trade-offs lets us determine the decision people will make

A

False because people can make good decisions only if they understand their options.
Example: A study should not abandon the study of “minor” subjects just to have time for the major subjects.

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18
Q

What is the second principle in Economics?

A

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

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19
Q

In making decisions, we are required to _____ and _______

A

compare the costs and benefits of alternative courses of action

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20
Q

For most students, what is the largest cost of education?

A

earnings given up to attend school

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21
Q

It is what you give up to get the item

A

Opportunity Cost

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22
Q

What are the problems in doing the calculation of the total cost in going to college?

A

1) It includes some things that are not really costs of going to college such as room and board
2) It ignores the largest cost of going to college, time.

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23
Q

They are the people who systematically and purposefully do the best they can to achieve their objectives.

A

rational people

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24
Q

What is opportunity cost?

A

Whatever must be given up to obtain some item

25
Q

If we choose something, we have to give up other _______

A

Opportunities

26
Q

You win $100. You have two choices: 1) spend the money or 2) keep the money in a bank for one year. The bank pays 5% interest. What is the opportunity cost if you spend the $100 now?

A

You will lose the 5% interest

27
Q

It is a small incremental adjustment to a plan of action.

A

Marginal Change

28
Q

It is something that induces a person to act

A

Incentive

29
Q

It is a reaction to incentive

A

Rational Decision

30
Q

What is the fifth principle of economics?

A

Trade can make everyone better off

31
Q

What is the sixth principle of economics?

A

Markets are usually a good way to organize economic activity

32
Q

True or False

Trade between two countries can make each country better off

A

True because the country can gain much from being able to trade with others, be able to specialize, and buy goods from others at a lower cost.

33
Q

It is an economy that allocates resources through the decentralized decisions of many firms and households

A

Market Economy

34
Q

It is where prices and self-interest guide their decisions

A

Market Economy

35
Q

What is the seventh principle of economics?

A

Governments can sometimes improve market outcomes

36
Q

It is the ability of an individual to own and exercise control over scarce resources

A

Property Rights

37
Q

Why do we need government?

A

To promote efficiency and equality

38
Q

It is a situation which a market left on its own fails to allocate resources efficiently.

A

Market Failure

39
Q

What are the two causes of market failure?

A

Externality and Market Power

40
Q

It is the impact of one person’s actions on the well-being of a bystander

A

Externality

41
Q

It is the ability of a single economic actor (or a small group of actor) to have a substantial influence on market prices.

A

Market Power

42
Q

Market economy rewards people according to their _____ things that other people are willing to pay for.

A

ability to produce

43
Q

What are the last three principles of economics? (8,9 and 10)

A

8 - A country’s standard of living depends on its ability to produce goods and services
9 - Prices rise when government prints too much money
10 - Society faces a short-run trade-off between inflation and unemployment

44
Q

It is the quantity of goods and services produced from each unit of labor input

A

Productivity

45
Q

It is an increase in the overall level of prices in the economy

A

Inflation

46
Q

Rational people make decisions by comparing the ___________ and ________

A

marginal benefits and marginal costs

47
Q

A rational decision maker takes an action if and only if the ___________ exceeds the _____________

A

marginal benefit, marginal cost

48
Q

True or False

Prices do not influence the behaviour of consumer and producers

A

False

49
Q

What principles concern on how people interact with one another?

A

Principle 5, 6 and 7

50
Q

What principles concern on how the economy works as a whole?

A

Principle 8, 9, 10

51
Q

It can make two countries better off

A

Trade

52
Q

True or False

By trading with others, there is no diversity in the goods or services available

A

False

53
Q

They decide what goods and services are produced, how much was produced, and who produced and consumed these goods

A

Central Planners

54
Q

These two factors guide households and firms in their decisions in the marketplace

A

prices and self-interest

55
Q

Despite decentralized ________ and _________ decision makers, market economy have proven remarkably successful in organizing economic activity

A

decision making and self-interested

56
Q

What was the title of the book did Adam Smith wrote in 1776 where his famous observation in all of economics can be found?

A

An Inquiry into the Nature and Causes of the Wealth of Nations

57
Q

Households and firms interacting in markets act as if they are guided by an ____________ that leads them to desirable market outcomes.

A

Invisible hand

58
Q

The ____ are the instruments with which the invisible hand directs economic activity

A

prices

Introduction to Economics (2 decks)

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