Chapter 1: Ten principles of Economics

Question 1

The term for “limited nature of society’s resources”

Answer 1

scarity

Question 2

the term for how society manages it scarce resource is..

Answer 2

economics

Question 3

What is principle one?

Answer 3

People face trade-offs

Question 4

“Society is getting the maximum benefits from its scarce resources” is called

Answer 4

efficiency

Question 5

“Benefits are distributed uniformly among society’s members” is called

Answer 5

equality

Question 6

What is principle two?

Answer 6

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

Question 7

“What you give up to get something” is called

Answer 7

opportunity cost

Question 8

What is principle three?

Answer 8

Rational people think at the margin

Question 9

“A small incremental adjustment to a plan of action” is called

Answer 9

marginal change

Question 10

Rational people make decisions by comparing what two things?

Answer 10

marginal benefit and marginal cost

Question 11

Margin also means…

Answer 11

edge

Question 12

What does thinking at the margin mean?

Answer 12

Evaluating whether are not an action will exceed the marginal cost of something and hence become a marginal benefit

Question 13

What is the marginal cost of streaming a movie on netflix?

Answer 13

Zero; you can stream as many movies as you wanted because you already paid the monthly fee.

Question 14

What is principle four?

Answer 14

People respond to incentives

Question 15

“Something that induces a person to act (punishment or reward” is called..

Answer 15

incentive

Question 16

What is principle five?

Answer 16

Trade can make everyone better off

Question 17

What is principle six?

Answer 17

markets are usually a good way to organize economic activity

Question 18

“Economy that uses the decision of many firms and households to allocate resources as they interact in markets for goods and services” is called…

Answer 18

market economy

Question 19

What is principle seven?

Answer 19

Governments can sometimes improve market outcomes

Question 20

“The ability of an individual to own and exercise control over scarce resources” is called

Answer 20

property rights

Question 21

Why do we still need the government if the market can improve economic activity?

Answer 21

The government plays an important role in enforcing rules and maintaining institutions; aka police or courts

Question 22

“A situation in which a market left on its own fails to allocate resources efficiently” is called

Answer 22

market failure

Question 23

The impact of one person’s actions on other being is called

Answer 23

externality

Question 24

The ability of a single economic actor to have powerful influence on market prices is called

Answer 24

market power

Question 25

What are two possible causes of market failure?

Answer 25

externality and market power

Question 26

What calls for government intervention in a market economy?

Answer 26

inequality

Question 27

What is principle eight?

Answer 27

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

Question 28

What explains the large difference in living standards among countries and over times?

Answer 28

productivity

Question 29

The quantity of goods and services produced from each unit of labor input is called

Answer 29

productivity

Question 30

What is principle nine?

Answer 30

Prices rise when the government prints too much money

Question 31

An increase in the overall level of prices in the economy is called…

Answer 31

inflation

Question 32

What is principle 10?

Answer 32

Society faces a short-run Trade off between inflation and unemployment

Question 33

Fluctuations in economic activity, such as employment and production is called

Answer 33

business cycle