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Chpt 1 Flashcards

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1
Q

What is efficiency?

A

Society is getting the most benefits from its scarce resources

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2
Q

What is equity?

A

Society’s scarce resources are fairly distributed amongst its members

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3
Q

What is the first principle of economics?

A

People face tradeoffs

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4
Q

Tradeoff: Pollution in return for

A

productivity

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5
Q

Tradeoff: guns in return for

A

butter

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6
Q

What is an opportunity cost?

A

What you give up (hypothetically) to obtain an item

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7
Q

Other than money, what is a major opportunity cost?

A

Money

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8
Q

What is the largest opportunity cost of going to university?

A

Lost wages from study time instead of working

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9
Q

How would you calculate a typical opportunity cost of not working to do a task?

A

The direct cost of the action plus the lost wages

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10
Q

What is the 2nd principle of economics?

A

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

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11
Q

What is the third principle of economics?

A

Rational people think at the margin.

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12
Q

What is a marginal change?

A

A small and incremental change to a plan of action

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13
Q

What is the effect of marginal analysis on the price of diamonds vs the price of water?

A

The marginal (extra) benefit of an additional glass of water is small, since water is common and we don’t always need more. Diamonds, on the other hand, have great extra benefit because they are scarce.

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14
Q

Principle four of economics: people respond to ____

A

incentives

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15
Q

Economics is best defined as the study of…

A

How society manages its scarce resources

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16
Q

Your opportunity cost of going to a movie is…

A

the price of a ticket plus any food you buy

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17
Q

Your opportunity cost of streaming one extra film is…

A

zero if you already paid for the month, plus potential lost wages or productivity

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18
Q

What is an incentive?

A

Something (prospect of a punishment or reward) that induces a person to act.

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19
Q

An incentive which induces firms to produce more of a good…

A

a higher price of the good,
cheap labour

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20
Q

An incentive that makes home break-ins less common

A

The decreasing price and benefit of valuable goods that can be stolen in the home

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21
Q

What marginal calculation is involved with driving safety

A

Calculating the marginal benefit of increased safety with the mental cost of that safety

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22
Q

On icy roads, how does the marginal calculation for driving safety change?

A

The marginal benefit of increased attention to safety is much greater as the risk is higher, compared to the cost of devoting that attention

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23
Q

Accident reduction and increased driver safety are carrots or sticks as incentives?

A

Carrots: they make it useful for people to pursue technology to improve these things.

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24
Q

True or false: Principle 5: of economics says that trade surely makes some people better off than others.

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A

False. Trade can make everyone better off.

25
Trade makes everyone better off because
People can specialize in what they do best and trade their surplus for the things that others do best
26
Principle 6 of economics:
Markets are usually a good way to organize economic activity
27
What is a market economy?
An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
28
What is the invisible hand?
The unobservable force that keeps supply and demand of goods in a free market in equilibrium
29
What is a synonym of the invisible hand?
The price mechanism
30
How does the invisible hand do its job?
When there is an increased demand from consumers, the price rises. Because the price rises, producers step up supply to meet the demand, hoping to gain a profit. Society's scarce resources are therefore put to use for what consumers need, which therefore increases economic efficiency.
31
What was Adam smith's great insight?
Prices guide buyers and sellers to reach outcomes that increase the aggregate well-being of society as a whole
32
How does Adam smith's great insight relate to taxes and command economies?
When the government prevents the invisible hand from coordinating millions of buyers and sellers, the well-being of society worsens.
33
Why would Adam smith love Uber?
Taxis are a highly regulated industry limited in drivers and in surge pricing. Uber is technically not a taxi because they don't roam the streets. It is also far more convenient than a taxi. Uber allows surge-pricing, which signals more Uber drivers to get to where rides are needed, thus allowing the riders who really need a ride home a way to do so.
34
True or false: Principle 7 of economics: Government can always improve market outcomes?
False. Government can sometimes improve market outcomes.
35
What are property rights?
The ability of an individual to own and exercise control over scarce resources
36
What are two reasons for government intervention in the economy?
Ensuring property rights and the functioning of of the system, or improving efficiency / equity
37
What is a market failure?
When the free market fails to produce an efficient allocation of resources through under or overproduction
38
Why is the pursuit of self interest vital in a market economy?
Producers must be free to pursue profits, and consumers the best quality at lower price, and worked to find desirable jobs. If they cannot, there is no incentive to work or produce or purchase.
39
What are some examples of public goods?
Property rights, basic research, national defence, govt programs aimed at fighting poverty and inequality
40
What are four attributes of government intervention?
Public goods, externalities, property rights, maintaining market competition
41
Why are property rights important in a market economy?
They need the incentive to be able to profit from their innovations and economic activity in order to do it
42
When producers are not held responsible for all the marginal costs of production, such as environmental costs...
producers tend to oversupply which leads to unsafe pollution levels
43
Why are monopolies important for the government to prevent?
they can impose higher prices and fewer product choices for consumers, making the economy inefficient.
44
Principle 8 of economics: A country's standard of living depends on its ability to produce...
goods and services
45
What is market power?
the ability of a single economic actor (or a small group) to have substantial influence on market prices
46
What is an externality?
The impact of one's actions on the well-being of a bystander
47
Why might the government want to intervene for equity?
The invisible hand does not ensure that income is distributed according to society's preferences, or even ensure that everyone has adequate food or water!
48
What is productivity?
The quantity of goods and services produced from each hour of a worker's time, or for each unit of labour input
49
Why does productivity result in a higher standard of living?
Greater production results in higher wages and employment levels, which leads to an increase in standard of living
50
What do governments do to increase productivity?
invest in quality Education, technology, or machinery
51
Income growth rises proportionally to...
productivity growth
52
Principle 9 of economics:
Prices rise when the government prints too much money.
53
What is inflation?
An increase in the overall level of prices in the economy
54
What causes inflation?
Growth in the quantity of money faster than the quantity of goods or services produced. Too much money to apply to available products
55
Principle 10 of economics: Society faces a short-run tradeoff between --- and ----
inflation; unemployment
56
Why does unemployment decrease inflation?
As more people become jobless, the average income level falls, meaning depressed spending, and a consequent rise in the inventory of producers, who have to sell these goods at lower prices.
57
Why does higher unemployment mean less inflation?
Higher wages means more spending, on goods, who can sell them at a higher price.
58
What is a business cycle?
Fluctuations in economic activity, such as employment and production
59

Micro (9 decks)

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