Chapter 1

Question 1

1st Principle of Economy

Answer 1

People face of trade off

Question 2

2nd Principle of Economy

Answer 2

The Cost of Something Is What you Give Up to Get it

Question 3

3rd Principle of Economy

Answer 3

Rational People Think at the Margin

Question 4

4th Principle of Economy

Answer 4

People Respond to Incentives

Question 5

5th Principle of Economy

Answer 5

Trade Can Make Everyone Better Off

Question 6

6th Principle of Economy

Answer 6

Markets Are Usually a Good Way to Organize Economic Activity

Question 7

7th Principle of Economy

Answer 7

Governments Can Sometimes Improve Market Outcomes

Question 8

People face of trade off

Answer 8

To get something that we like, we usually have to give up something else that we also like.

Making decision requires trading off one goal against another.

Question 9

The Cost of Something Is What You Give Up to Get It

Answer 9

Opportunity Cost.

Sometimes, the cost of an action is not as obvious as it might first appear.

Question 10

Rational People Think at the Margin

Answer 10

Economists normally assume that people are rational.

Rational People make decisions by comparing Marginal Benefits or Marginal Costs.

Question 11

People Respond to Incentives

Answer 11

Rational people respond to incentive

Ex: At higher price
An incentive for buyers to purchase less.
An incentive for sellers to produce more.

Question 12

Trade Can Make Everyone Better Off

Answer 12

By trading with others, people can buy a greater variety of goods and services at lower cost.

Question 13

Markets Are Usually a Good Way to Organize Economic Activity

Answer 13

○ Firms decide whom to hire and what to make.

Households decide which firms to work for and what to buy with their incomes.

Question 14

Governments Can Sometimes Improve Market Outcomes

Answer 14

Invisible hand only work if government enforces the rules and maintains the institutions.

Question 15

Scarcity

Answer 15

The limited nature of society’s resources

Question 16

Economics

Answer 16

The study of how society manages its scarce resources

Question 17

Efficiency

Answer 17

The property of society getting the most it can from its scarce resources

Question 18

Equality

Answer 18

The Property of distributing economic prosperity uniformly among the members of society

Question 19

Opportunity Cost

Answer 19

Whatever must be given up to obtain some items

Question 20

Rational People

Answer 20

People who systemativally and purposefully do the best they can to achieve their objectives

Question 21

Marginal Change

Answer 21

A small incremental adjustment to a plan of action

Question 22

Marginal Cost

Answer 22

The additional cost to produce each additional unit

Question 23

Marginal Benefit

Answer 23

A maximum amount a costumer is willing to pay for an additional goof or services.

Question 24

Incentives

Answer 24

Something that induces a person to act.

Question 25

Market Economy

Answer 25

An economy that allocates resources through the decentralized decisiions of many firms and house holds as the interact in markets for goods and services.

Question 26

Property Rights

Answer 26

The ability of an individual to own and exercise control over scarce resources

Question 27

8th Principle of Economy

Answer 27

A Country's Stantard of Living Depends on Its Ability to Produce Goods and Services

Question 28

9th Principle of Economy

Answer 28

Price Rise When the Government Prints Too Much Money

Question 29

10th Princuple of Economy

Answer 29

Society Faces a Short-Run Trade-Off between Infaltion and Unemployement

Question 30

Market Failure

Answer 30

A situation in which a market left on its own fails to allocate resourcesefficiency

Question 31

Externity

Answer 31

The impact of one person's actions on the well-being of a bystander

Question 32

Market Power

Answer 32

The ability of a single economic action (or small group of actors) to have a substanctial influence on market prices

Question 33

Productivity

Answer 33

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

Question 34

Inflation

Answer 34

An increase in the overall level of prices in the economy

Question 35

Business Cycle

Answer 35

Fluctuations in economic activity, such as employment and production

Question 36

A Country's Stantard of Living Depends on Its Ability to Produce Goods and Services

Answer 36

Countries' productivity creates different living standard among them The growth rate of a nation's productivity determines the growth rate of its average income

Question 37

Price Rise When the Government Prints Too Much Money

Answer 37

Inflation can occur. High inflation imposes various costs on society.

Question 38

Society Faces a Short-Run Trade-Off between Infaltion and Unemployement

Answer 38

Increase the amount of money can raises prices in the long run But it becomes complex when it comes to short-run Stimulates the overall level of spending and thus the demand for goods and services Higher demands cause firms to raise their prices, but it also encourages them to hire more workers and produce more More hiring means lower unemployment