Chapter 1 Flashcards
people face trade offs
To get one thing that we like, we usually have to give up another thing that we also like.
opportunity cost
of an item is what you give up to get that item.
marginal changes
small incremental adjustments to a plan of action
People Respond to Incentives
Because people make decisions by comparing costs and benefits, their behaviour may change when the costs or benefits change.
Trade Can Make Everyone Better Off
By trading with others, people can buy a greater variety of goods and services at lower cost.
market economy
Firms decide whom to hire and what to make. Households decide which firms to work for and what to buy with their incomes
Governments Can Sometimes Improve Market Outcomes
Markets work only if property rights are enforced. A farmer won’t grow food if he expects his crop to be stolen, and a restaurant won’t serve meals unless it is assured that customers will pay before they leave.
Market failure
a situation where scarce resources are not allocated to their most efficient use
causes of market failure: (2)
Externality: the uncompensated impact of one person’s actions on the well-being of a bystander (a third party) (example. pollution)
Market power: the ability of a single person (or small group) to unduly influence market prices
economic growth
the percentage increase in the number of goods and services produced in an economy over a period of time
gross domestic product per head
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
standard of living
refers to the amount of goods and services that can be purchased by the population of a country.
productivity
the quantity of goods and services produced from each hour of a workers time
Prices Rise When the Government Prints too much Money
most reasons for high inflation is the growth in the quantity of money
Society Faces a Short-run Trade-off Between Inflation and Unemployment
When the government increases the amount of money in the economy, one result is inflation. Another result, at least in the short run, is a lower level of unemploy- meant. (Phillips curve)
