Midterm Flashcards
(55 cards)
Scarcity
The limited nature of society’s
resources.
Principle 1:
people face tradeoffs
Principle 2:
The cost of something is what you give up to get it
Principle 3:
Rational people think at the margin
Principle 4:
People repsong to incentives
Principle 5:
Trade can make everbody better off
Principle 6:
Markets are usually a good way to organize economic activity
Principle 7:
Governments can sometimes improve market outcomes
Principle 8:
A country’s standard of living depends on its ability to produce goods and services
Principle 9:
Prices rise when the government prints too much money
Principle 10:
Society faces a short-run tradeoff between inflation and unemployment
Oppurtunity cost:
Whatever must be given up to obtain some item.
Rational people:
People who systematically and purposefully do the best they can to achieve their objectives.
Marginal changes:
Small incremental adjustments to a plan of action.
Incentive:
Something that induces a person to act.
Property rights:
The ability of an individual to own and exercise control over scarce resources.
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
We need governments for two reasons:
1) To enforce property rights
2) Because the invisible hand is powerful, but it is
not omnipotent
Market failure:
A situation in which a market left on its own fails to allocate resources efficiently
Externality:
The impact of one person’s actions on the well-being of a bystander.
Productivity:
The quantity of goods and services produced from each hour of a worker’s time.
Productivity:
The quantity of goods and services produced from each hour of a worker’s time.
Inflation:
An increase in the overall level of prices in the
economy.
Buisness cycle:
The irregular and largely unpredictable fluctuations in economic activity, as measured by the production of goods and services or the number of people employed.
