Chapter 1

Question 1

Scarcity

Answer 1

Resources are limited and therefore society cannot produce all the goods and services people wish to have

Question 2

Economics

Answer 2

Study of how society manages its scarce resources

Question 3

Principle 1

Answer 3

People face tradeoffs

Question 4

Efficiency

Answer 4

Society getting the most it can from its scarce resources

Question 5

Equity

Answer 5

Distribution of economic prosperity among members of society

Question 6

Principle 2

Answer 6

Costs of something is what you give up to get it

Question 7

Opportunity cost

Answer 7

Whatever must be given up to obtain some item

Question 8

Principle 3

Answer 8

Rational people think at the margin

Question 9

Rational people

Answer 9

Those who systematically & purposefully do the best they can to achieve their objectives

Question 11

Marginal changes

Answer 11

Small increment adjustments to a plan of action

Question 12

Principle 4

Answer 12

People respond to incentives

Question 13

Incentive

Answer 13

Something that induces a person to act

Question 14

Principle 5

Answer 14

Trade can make everyone better off

Question 15

Principle 6

Answer 15

Markets are usually a good way to organize economic activity

Question 16

Market economy

Answer 16

Economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

Question 17

Principle 7

Answer 17

Governments can sometimes improve market outcome

Question 18

Property rights

Answer 18

Ability of an individual to own and exercise control over scarce resources

Question 19

What does the government do to improve market outcome

Answer 19

Enforce property rights
Intervene in the economy

Question 20

Productivity

Answer 20

Output per unit of input

Question 21

Inflation

Answer 21

An increase in the overall level of prices in the economy