Chapter 1 - First Principles

Question 0

Individual choice

Answer 0

Decisions of an individual about what to do and what not to do

Question 1

Three levels of economic activity

Answer 1

How individuals make choices, how the choices interact, and economy-wide interactions

Question 2

Principle 1 - Resource and Scarcity

Answer 2

Choices are necessary because resources are scarce.

Question 3

Resource

Answer 3

Anything that can be used to produce something else

Question 4

Capital

Answer 4

Machinery, buildings, and other man-made productive assests

Question 5

Human capital

Answer 5

Education and skills of workers

Question 6

Scarce

Answer 6

A situation in which there are not enough resources to satisfy the wants of society

Question 7

Principle 2: The Cost of Something

Answer 7

The true cost of something is its opportunity cost

Question 8

Opportunity cost

Answer 8

What you must give up in order to have something

Question 9

Principe 3: Decisions at the margin

Answer 9

“How much” decisions require comparing the costs and benefits of doing more or less of an activity

Question 10

Trade-off

Answer 10

A comparison of costs and benefits

Question 11

Marginal Decisions

Answer 11

Decisions about whether to do more or less of an activity

Question 12

Marginal analysis

Answer 12

The study of marginal decisions

Question 13

Principle 4: Exploiting opportunities

Answer 13

People usually respond to incentives to make themselves better off

Question 14

Incentive

Answer 14

An opportunity to make oneself better off

Question 15

Economic interaction

Answer 15

How the choices of individuals influence each other

Question 16

Principle 5: Benefits of Trade

Answer 16

There are gains from trade as opposed to being self-sufficient

Question 17

Trade

Answer 17

When individuals provide goods and services to each other

Question 18

Gains from trade

Answer 18

The benefits individuals get from dividing tasks as opposed to being self-sufficient

Question 19

Specialization

Answer 19

Individuals performing tasks which they are good at

Question 20

Principle 6: Markets move to Equilibrium

Answer 20

Because people respond to incentives, markets move towards equilibrium

Question 21

Equilibrium

Answer 21

A situation where an individual would not be better off doing something different

Question 22

Principle 7: Resources should be used efficiently

Answer 22

Resources should be used as efficiently as possible to achieve society`s goals

Question 23

Efficient

Answer 23

When an economy takes all opportunities to make people better than worse off

Question 24

Equity

Answer 24

A situation in which individuals receive their own fair shares

Question 25

Principle 8: Markets usually lead to efficiency

Answer 25

Because people exploit gains from trade, markets usually lead to efficiency

Question 26

Principle 9: Government intervention can improve society`s welfare

Answer 26

When markets don`t achieve efficiency, government intervention can improve society`s welfare

Question 27

Ways in which market failure occurs (3)

Answer 27

Individual actions have side effects not considered by the market, a party prevents mutually beneficial trade by trying to gain more resources, and some goods are unsuited for efficient management by the market

Question 28

Economy-wide interactions

Answer 28

The economy as a whole has ups and downs

Question 29

Principle 10: Spending and Income

Answer 29

One person`s spending is another person`s income

Question 30

Principe 11: Overall spending and economic productive capacity

Answer 30

Overall spending sometimes gets out of line with the economy`s productive capacity

Question 31

Principle 12: Government policies can change spending

Answer 31

Taxes and the circulation of money can change the way society spends

Question 32

Inflation

Answer 32

A rise in prices throughout the economy

Question 33

Overall spending

Answer 33

The amounts of services and goods that consumers and businesses want to buy