Principles of economics Flashcards
(10 cards)
People face trade-offs
People come across decisions that shift their priorities/ put one option above another. Most decisions involve trading off one thing for another.
The cost of something is what you give up to get it
Since people face trade-offs, a decision will require an individual to create a comparison between the cost of a certain good or service or an alternative
Rational people think at the margin
People look for a way to achieve maximum satisfaction within their means. Their decisions are influenced by marginal changes and rational thinking.
People respond to incentives
In a market based economy, changes in prices of goods and services leads to a change in behavior of buyers and sellers. (e.g. When the prices of apples goes up, people decide to eat fewer apples.)
Trade can make everyone better off
In trade, all the parties involved gain something by focusing on what they’re good at.
Markets are usually a good way to organize economic activity
In a market economy, households and firms that have a share in the economy have the ability to collectively make a decision.
Governments can sometimes improve market outcomes
Even though the invisible hand is quite significant in the market, it still relies on the government to maintain certain policies.
A countries standard of living depends on country production
To increase the living standard, there need to be public policies that affect it without negatively impacting productivity by way of increasing education and providing better access to tools and technology
Prices rise when the government prints too much money
Prices follow inflation, and a high rate of inflation increases costs, so economic policymakers aim for a lower level of inflation to keep the market moving.
Society faces a short run trade-off between unemployment and inflation
Another result that occurs when there’s more money circulating is a lower rate of employment. Economists use the Phillips Curve to trace the correlation between the two, which helps them understand market and business cycles.
