Chapter 1 Flashcards
(37 cards)
1
Q
economy
A
- a system for coordinating society’s productive activities
2
Q
economics
A
- the social science that studies the production, distribution, and consumption of goods and services
3
Q
market economy
A
- an economy in which decisions about production and consumption are made by individual producers and consumers
4
Q
command economy
A
- there is a central authority making decisions about production and consumption
- alternative to a market economy
5
Q
Wealth of Nations
A
- Adam Smith said that people pursuing their own interests often end up serving the interests of society as a whole
6
Q
invisible hand
A
- refers to the way in which the individual pursuit of self-interest can lead to good results for society as a whole
7
Q
microeconomics
A
- the branch of economics that studies how people make decisions and how these decisions interact
8
Q
Market failure
A
- When the individual pursuit of self-interest leads to bad results for society as a whole
9
Q
fluctuations
A
- a series of ups and downs
10
Q
recessions
A
- a downturn in the economy
11
Q
macroeconomics
A
- concerned with the overall ups and downs of the economy
12
Q
economic growth
A
- the growing ability of the economy to produce goods and services
13
Q
economic interaction
A
- how my choices affect your choices, and vice versa
14
Q
individual choice
A
- decisions by an individual about what to do and what not to do
15
Q
resource
A
- anything that can be used to produce something else
- land
- labor
- capital
- human capital
16
Q
scarce
A
- when there’s not enough of the resource available to satisfy all the various ways a society wants to use it.
17
Q
opportunity cost
A
- what you must give up in order to get an item you want
18
Q
“how much” decision
A
- is made at the margin
19
Q
tradeoff
A
- a comparison of costs and benefits
20
Q
marginal decisions
A
- decisions about whether to do a bit more or a bit less of an activity
21
Q
marginal analysis
A
- the study of marginal decisions
22
Q
incentive
A
- anything that offers rewards to people who change their behavior
23
Q
interaction
A
- my choices affect your choices, and vice versa
24
Q
principles that underlie the interaction of individual choices
A
- there are gains from trade
- markets move toward equilibrium
- resources should be used as efficiently as possible to achieve society’s goals
- Markets usually lead to efficiency
- When markets don’t achieve efficiency, government intervention can improve society’s wealth
25
trade
* provide goods and services to others and receive goods and services in return
* the key to a much better standard of living
26
gains from trade
* people can get more of what they want through trade than they could if they tried to be self-sufficient
27
specialization
* each person specializes in the task that he or she is good at performing
* the economy can produce more when each person specializes
* it is to everyone's advantage to specialize
28
equilibrium
* an economic situation when no individual would be better off doing something diferent
29
measure that economists truly care about
* people's happiness and welfare
30
efficient
* takes all opportunities to make some people better off without making other people worse off
31
equity
* everyone gets his or her fair share
* there is typically a trade-off between equity and efficiency
* policies that promote equity often come at a cost of decreased efficiency in the economy
32
market failure
* the individual pursuit of self-interest found in markets make society worse off
* market outcome is insufficient
33
Principles that underlie economy-wide interaction
1. one person's spending is another person's income
2. overall spending sometimes gets out of line with the economy's productive capacity
3. government policies can change spending
34
inflation
* a rise in prices throughout the economy
35
Tools of macroeconomic policy
* government spending
* taxes
* control of money
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