Chapter 1 Reading Pt.2 Flashcards
What is the first principle of economics?
Economics is concerned with managing all of Society’s resources (not just money) in order to maximize well-being.
What are tradeoffs?
Deciding between alternatives
What is “opportunity cost”
It measures the value of a decision that will use up your time and/or money, or what you “give up” when you make an economic decision
What is principle #2 in economic?
“When making decisions, one must take into account tradeoffs and opportunity costs”
In economics, principle 3 States that “specialization leads to gains for all involved,” what does this mean?
Its better if one is able to specialize in activities in which they are more proficient. For example, someone who has a talent for farming shove specialize and become a farmer rather than someone who is bad at it.
What are “incentives?”
Something that encourages a person to do something in their best interest
What is principle 4 of economics?
People respond to incentives, both good and bad. The natural tendency for society to respond to incentives leads individuals and firms to work hard and generate ideas that increase productivity
Principle 5 is “rational Behavior requires thinking on the margin,” what does this mean?
You need to think on the margin by weighing the benefit with the cost.
What drives and disciplines markets?
Price and profit. Profit drives organizations to produce more products (eg.Apple) or lower the prices of products (eg.walmart).
What keeps markets from taking advantage of consumers?
When prices in a market become too high, new markets jump in with lower prices. This threat of competition keeps markets from taking advantage of consumers
What is the “invisible hand”
invisible forces that motivate the economy through individual self interest and freedom of consumption
Principle 6: Markets are generally efficient and when they aren’t, the government can sometimes correct there failure, how do they usually do this?
If there are fluctuations with the economy, the government can impose policies like government spending or tax cuts.
The key to higher standards of living is ________ ________, which can be measured a number of ways, most commonly by estimating the change in a country’s real ______ _______ ______ per capita.
Economic Growth; Gross domestic product
What are the two persistent economic obstacles that naturally occur in the economy
Unemployment and inflation. If unemployment is high, inflation is low (and vice versa)
What two factors influence the wealth of the nation
good institutions and human creativity (ability to create new ideas)
