The Principles Flashcards

1
Q

1st Principle

A

Choices are necessary because resources are scarce

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2
Q

Define:
-Resource
-Scarce

A
  • anything that can be used to produce something else

-a resource is scarce when there’s not enough of the resource available to satisfy all the various ways a society wants to use it

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3
Q

2nd Principle

A

The true cost of something is its opportunity cost

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4
Q

Define Opportunity Cost

A

What you must give up (forego) in order to get something
- when making a decision you may not only consider the monetary cost

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5
Q

3rd Principle
Trade-off?

A

How much is a decision at the margin

-comparison of the costs and the benefits of doing something

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6
Q

Explain Marginal Decision
Define Marginal analysis

A

a decision made at the margins of an activity about whether to do a bit more or a bit less of that activity

the study of marginal decisions

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7
Q

4th Principle

A

People respond to incentives (disincentives) exploiting opportunities to make themselves better off

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8
Q

Define Incentive

A

anything that offers rewards to people who change their behaviour

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9
Q

5th Principle

A

There are gains from trade, which arise from specialization

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10
Q

Define Specialization

A

The situation in which each person specializes in the task that they are good at performing

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11
Q

6th Principle

A

markets move toward equilibrium
-people respond to incentives and avoid harm (punishments), markets move toward equilibrium

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12
Q

Define Equilibrium

A

an economic situation in which no individual would be better off doing something different

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13
Q

7th Principle

A

Resources should be used efficiently to achieve society’s goals

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14
Q

How do you know if the economy is efficient

A

If it takes all opportunities to make some people/ organizations better off without making other people worse off
( use resources to produce optimally)

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15
Q

Define Equity

A

a condition in which everyone gets their fair share of

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16
Q

8th Principle

A

Markets usually lead to efficiency, but when they don’t government intervention can improve society’s welfare

people normally take opportunities to make themselves better off

17
Q

Define Efficiency

A

all the opportunities to make people better off have been exploited

18
Q

Explain Market Failure

A

the pursuit of self-interest makes society worse off
when markets don’t achieve efficiency, government can intervene to improve society’s welfare

19
Q

9th Principle

A

One persons spending is another person’s income
during recessions a drop in business
-less income
-less spending
-increase in unemployment

20
Q

10th Principle

A

Overall spending sometimes gets out of line with the economy’s productive capacity; when it does, government policy can change spending

21
Q

What is Productive capacity?

A

the amount of goods and services the economy is capable of producing

22
Q

What is Productive capacity?

A

the amount of goods and services the economy is capable of producing

23
Q

What is Overall Spending

A

amount of goods and services that consumers and businesses want to buy

24
Q

What happens if the overall spending doesn’t match the amount the economy is capable of producing?

A

when it falls short- economy experienced recession

when it outstrips the supply- the economy experience inflation

government policies can be used to address the imbalances (monetary policy, fiscal policy )

25
11th Principle
Increases in the economy’s potential, lead to economic growth over time
26
Define Economy’s Potential
the total amount of goods and services it can produce
27
Define Economic growth
the increase in living standards over time
28
Examples on how to boost economy’s potential
-emergence of new technologies -skill development -increase in resources available for production boost the economy’s potential -> hence living standards improve
29
What does an increase in living standards mean?
they are usually unequally distributed among a country’s residents- creating winners and losers e.g. new source of energy= benefit economy and government= winners reduced demand for coal= reduce income for mining companies= losers
30
Which principles are due to individual choices?
1-4
31
Which Principles are due to interaction of individual choices?
5-8
32
Which Principles are due to economy-wide interactions
9-11