Chapter 1

Question 1

what is a resource

Answer 1

anything that can be used to produce something else.

Question 2

what is scarce

Answer 2

a resource is scarce when there is not enough of the resource available to satisfy all the various ways a society wants to use it.

Question 3

what is the first principle of individual choice

Answer 3

choices are necessary because resources are scarce

Question 4

What is opportunity cost

Answer 4

what you must give up in order to get something

Question 5

what is the second principle of individual choice

Answer 5

The true cost of something is the opportunity cost

Question 6

define trade off

Answer 6

comparison of the costs and the benefits of doing something

Question 7

what is the third principle of individual choice

Answer 7

“how much” is a decision at the margin

Question 8

what is marginal decision

Answer 8

a decision made at the margins of an activity about whether to do a bit more or a bit less of that activity

Question 9

what is marginal analysis

Answer 9

the study of marginal decisions

Question 10

what is the fourth principle of individual choice

Answer 10

people respond to incentives, exploiting opportunities to make themselves better off

Question 11

what is incentive

Answer 11

anything that offers rewards to people who change their behavior

Question 12

what is the first principle of interaction of individual choice

Answer 12

there are gains from trade

Question 13

trades allow

Answer 13

us to consume more than we otherwise could

Question 14

when do gains from trade arise

Answer 14

from specialization

Question 15

define the specialization

Answer 15

the situation in which each person specializes in the task that he or she is good at performing

Question 16

what is the second principle of interaction of individual choice

Answer 16

markets move towards equilibrium

Question 17

why do markets move towards equilibrium

Answer 17

because people respond to incentives

Question 18

define equilibrium

Answer 18

an economic situation in which no individual would be better off doing something different

Question 19

what is the third principle of interaction of individual choice

Answer 19

resources should be used efficiently to achieve society’s goals

Question 20

when is an economy efficient

Answer 20

if it takes all opportunities to make some people better off without

Question 21

define equity

Answer 21

a condition in which everyone gets his or hers “fair share”

Question 22

are equity and efficiency often even or at odds

Answer 22

odds

Question 23

people normally take opportunities to make __________ better off

Answer 23

themselves

Question 24

what is the fourth principle of interaction of individual choice

Answer 24

markets usually lead to efficiency, but when they don’t governments intervention can improve societies’ welfare

Question 25

what is the first principle of economy wide interactions

Answer 25

one persons spending is another persons income

Question 26

what is the second economy ide interaction

Answer 26

overall spending sometimes gets out of line with the economy's productive capacity; when it does, government policy can change spending

Question 27

When the overall spending falls short of what is needed to keep workers employed, the economy experiences __________

Answer 27

recession

Question 28

When overall spending outstrips the supply, the economy experiences __________

Answer 28

inflation

Question 29

When the economy experiences shortfalls or excesses in spending, government ________ can be used to address the imbalances

Answer 29

policies

Question 30

what is economic growth

Answer 30

the increase in living standards over time

Question 31

what is the economy's potential

Answer 31

the total amount of goods and services it can produce

Question 32

what is the third principle of economy wide interaction

Answer 32

increases in the economies potential leads to economic growth over time

Question 33

Does emergence of new technology increase economic growth or economy's potential?

Answer 33

Both! Emergence of new technologies and increases in resources available for production boost the economy’s potential, hence living standards.

Question 34

what is micro economics

Answer 34

a study of how individuals make decisions

Question 35

what are the two types of decisions we can have

Answer 35

either-or and how many(marginal)

Question 36

what is an example of a sunk cost

Answer 36

paying for a 1 month subscription, doesnt matter how much you use it, you are paying the same amount of money

Question 37

what are the 3 main types of economys

Answer 37

centrally planned market economy modern mixed economy

Question 38

centrally planned economy vs market economy

Answer 38

centrally planned: pre set quantity, no interaction, government decides. market economy: totally depends on interaction, no government decision