question
Scarcity
answer
The limited nature of society's resources
question
Economics
answer
The study of how society manages its scarce resources
question
Example of Economics
answer
How people decide what to buy, how much to work, save, and spend
question
People Face Tradeoffs
answer
Principle #1
question
True
answer
Do all decisions involve tradeoffs? T/F
question
Going to a party the night before your midterm leaves less time for studying
Having more money to buy things requires working longer hours, which leaves less time for leisure
Having more money to buy things requires working longer hours, which leaves less time for leisure
answer
Example of a Tradeoff:
question
Efficiency
answer
When society gets the most from its scarce resources
question
Equality
answer
When prosperity is distributed uniformly among society's members
question
Efficiency vs. Equality
To achieve greater equality, income could be redistributed from wealthy to poor. However, this reduces incentive to work and produce, in turn shrinks the size of the economic "pie"
To achieve greater equality, income could be redistributed from wealthy to poor. However, this reduces incentive to work and produce, in turn shrinks the size of the economic "pie"
answer
What important tradeoff does society face?
question
The cost of something is what you give up to get it
answer
Principle #2
question
Opportunity Cost
answer
The specific value of the best alternative given up; it is relative for decision making
question
Going to college for a year is not just the tuition, books, and fees but also the foregone wages
answer
Example of Opportunity Cost:
question
Rational People Think at the Margin
answer
Principle #3
question
Rational People
answer
Makes decisions by evaluating costs and benefits or marginal changes, incremental adjustments to an existing plan
question
When a manager considers whether to increase output, he/she compares the cost of the needed labor and materials to the extra revenue
answer
Examples of Rational People:
question
People Respond to Incentives
answer
Principle #4
question
Incentive
answer
Something that induces a person to act; the prospect of a reward or punishment
question
Incentives
answer
What do Rational People respond to?
question
When cigarette taxes increase, teen smoking falls
answer
Example of Incentive:
question
Trade Can Make Everyone Better Off
answer
Principle #5
question
...
answer
Rather than being self-sufficient, people can specialize in producing one good or service and exchange it for other goods.
question
Trade and Specialization
answer
What can countries benefit from?
question
Market
answer
A group of buyers and sellers (need not to be in a single location)
question
WHAT goods to produce
HOW to produce them
HOW MUCH of each to produce
WHO gets them
HOW to produce them
HOW MUCH of each to produce
WHO gets them
answer
Organize Economic Activity means determining:
question
Markets are Usually a Good Way to Organize Economic Activity
answer
Principle #6
question
Market Economy
answer
Allocates resources through the decentralized decisions of many households and firms as they interact in markets
question
"The Wealth of Nations"
answer
Adam Smith was the author of...
question
Invisible Hand
answer
According to Adam Smith, this force best regulates the free market in a capitalist economy
question
Governments can Sometimes Improve Market Outcomes
answer
Principle #7
question
Price
answer
The interaction of buyers and sellers determines...
question
...
answer
Prices guide self-interested households and firms to make decisions that, in many cases, maximize society's economic well-being.
question
Enforce Property Rights (with police courts)
People are less inclined to work, produce, invest, or purchase if large risk of their property being stolen
People are less inclined to work, produce, invest, or purchase if large risk of their property being stolen
answer
Important Role for Gov't
question
Market Failure
answer
When the market fails to allocate society's resources efficiently
question
1. Externalities
2. Market Power
2. Market Power
answer
What are causes of Market Failure:
question
Externality
answer
When the production or consumption of a good affects bystanders ex: Pollution
question
Market Power
answer
A single buyer or seller has substantial influence on market price ex: Monopoly
question
Efficiency
answer
What may public policy promote
question
Promote Equity
answer
Gov't may alter outcome to...
question
A Country's Standard of Living Depends on its Ability to Produce Goods & Services
answer
Principle #8
question
Standards of Living
answer
Huge variations in ....... across countries and over time
question
The U.S Standard of Living today is about eight times larger than 100 years ago
answer
Average income in rich countries is more than ten times average income in poor countries
question
Productivity
answer
The most important determinant of living standards is ...
question
Productivity
answer
The amount of goods and services produced per unit of labor
question
Equipment, skills and technology available to workers
Other factors: Labor unions, competition from abroad- have far less impact on living standards
Other factors: Labor unions, competition from abroad- have far less impact on living standards
answer
Productivity depends on the ...
question
Prices Rise When the Government Prints Too much Money
answer
Principle #9
question
Inflation
answer
Increases the general level of prices
question
Excessive growth in the quantity of money, which causes the value of money to fall
answer
What is inflation caused by?
question
The greater the inflation rate
answer
The faster the gov't creates money...
question
Society Faces a Short-run Tradeoff between Inflation and Unemployment
answer
Principle #10
question
...
answer
Tradeoff is always present
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
