Chapter 1

Question 1

what is economics?

Answer 1

the study of how society manages its scarce resources.

Question 2

what is principal 1 of economics?

Answer 2

people face tradeoffs

Question 3

what is principal 2?

Answer 3

the cost of something is what you give up to get it

Question 4

what is opportunity cost?

Answer 4

the potential benefit that a person or business gives up by choosing one alternative over another.

Question 5

what is principal 3?

Answer 5

rational people think at the margins

Question 6

what are marginal changes?

Answer 6

small, incremental adjustments

Question 7

what is principal 4?

Answer 7

people respond to incentives

Question 8

what is principal 5?

Answer 8

trade can make everyone better off

Question 9

what is principal 6?

Answer 9

markets are usually a good way to organize economic activity

Question 10

what is a market economy?

Answer 10

an economic system in which goods and services is determined by supply and demand

Question 11

what is principal 7?

Answer 11

governments can sometimes improve market outcomes

Question 12

what are property rights?

Answer 12

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

Question 13

what are the two broad reasons for the government to intervene in the economy and change allocation of resources?

Answer 13

to promote effeciency and to promote equity. most policies change to enlarge the economic pie, or how the pie is divided

Question 14

what is market failure?

Answer 14

a situation in which a market left on its own fails to allocate resources efficiently

Question 15

what is market power?

Answer 15

the ability of a single economic actor to have a substantial influence on market prices

Question 16

what is principal 8?

Answer 16

a countrys standard of living depends on its ability to produce goods and services

Question 17

what is principal 9?

Answer 17

prices rise when the government prints too much money

Question 18

what causes inflation?

Answer 18

growth in the quantity of money that is faster than the rate of growth in the quantity of goods and services being produced

Question 19

what is principal 10?

Answer 19

society faces a short run trade off between inflation and unemployment

Question 20

what is the business cycle?

Answer 20

flucuations in economic activity such as employment and production

Question 21

what is marginal benefit?

Answer 21

the extra satisfaction or utility a consumer gets from buying one more unit of a good or service.

Question 22

what are externalities?

Answer 22

when the consumption of a good or service benefits or harms a third party.

Question 23

what is equity?

Answer 23

fairness

Question 24

what is effeciency?

Answer 24

optimal use of resources

Question 25

how does inflation effect employment in the short run?

Answer 25

the government increases the quantity of money by printing more money. this monetary policy causes higher prices which leads to increased demand for goods and services which causes lower eomplyment.