Econ Final - Chapter 1

Front 1

What does the word economy mean?

Back 1

"One who manages a household"

Front 2

What is scarcity?

Back 2

society has limited resources and therefore cannot produce all goods people wish to have

Front 3

Why is management of society's resources done by making choices?

Back 3

Because resources are scarce.

Front 4

What is Economics?

Back 4

The study of how society manages its resources. (Individually and as a Society)

Front 5

The First Four Principals of Economics?

(How people make decisions?)

Back 5

1. People face tradeoffs
2. The cost of something is what you give up to have it.
3. Rational people think at the margin.
4. People respond to incentives.

Front 6

The Three Principals of Economics of (How People interact with each other)?

Back 6

5. Trade makes everyone better off
6. Markets are a good way to organize economic activity
7. Governments can improve economic outcomes.

Front 7

The Last Three Principles of Economics (the Economy as a Whole)

Back 7

8. Standard of Living Depends on a country's production
9. Prices rise when the government prints too much money
10. Society faces a short-run tradeoffs between inflation and unemployment.

Front 8

Describe "People Face Tradeoffs"

Back 8

- To get one thing, we have to give up something else.
- We also must weigh Efficiency and Equity

Front 9

What is efficiency?

Back 9

society getting the most that it can from scarce resources.

Front 10

What is equity?

Back 10

benefits of scarce resources are distributed fairly.

Front 11

What is the cost of something?

Back 11

What you give up to get it.

Front 12

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

Describe

Back 12

Everything has opportunity costs.

Front 13

What are opportunity costs?

Back 13

whatever must be given up to obtain something

Front 14

Rational people think at the ____.

Back 14

margin

Front 15

Rational People Think at the Margin.

Describe

Back 15

People make decisions by comparing costs and benefits at the margin.

Front 16

What are rational people?

Back 16

People who systematically and purposefully do the best they can to achieve their objectives.

Front 17

What are marginal changes?

Back 17

small, incremental adjustments to an existing plan or action.

Front 18

When does the decision to choose one alternative over another?

Back 18

When the alternative's marginals benefits exceed its marginal costs.

Front 19

Trade makes everyone ___.

Back 19

better off

Front 20

Why does trade make everyone better off?

Back 20

Competition and specialization allow everyone to do better.

Front 21

What is absolute advantage?

Back 21

the ability to produce a good using fewer inputs than another producer.

Front 22

What is comparative advantage?

Back 22

the ability to produce a good at a lower opportunity cost than another producer.

Front 23

What is a market economy?

Back 23

an economy that allocates resources through the decentralized decisions of many firms and households

Front 24

In a market economy, what do households decide?

Back 24

Who to work for and what to buy.

Front 25

In a market economy, what do firms decide?

Back 25

Who to hire and what to produce.

Front 26

Who recognized the "Invisible Hand"?

Back 26

Adam Smith

Front 27

Why are Markets a good way to organize economic activity?

Back 27

Prices guide decision makers to reach outcomes that tend to maximize the welfare of society as a whole.

Front 28

According to Adam Smith, what happens when the government prevents prices from adjusting naturally to supply/demand?

Back 28

it impedes the invisible hand's ability to coordinate decisions that make up the economy.

Front 29

Why did communism fail?

Back 29

the invisible hand couldn't work

Front 30

What is market failure?

Back 30

when the market fails to allocate resources efficiently.

Front 31

What can cause market failure?

Back 31

-externality

-market power

Front 32

What is externality?

Back 32

the impact of one person's actions on the well-being of a bystander

Front 33

What is market power?

Back 33

the ability of a single person to unduly influence market prices

Front 34

Reasons why we need the government?

Back 34

1. Protect property rights
2. To promote efficiency
3. To promote equity

Front 35

What ways can a country's standard of living be measured?

Back 35

-Total personal incomes

-Total market value of a nation's production

Front 36

GHistorically, how have incomes grown in the US?

Back 36

About 2% annually

Front 37

What can explain almost all variations in living standards among countries?

Back 37

Productivity

Front 38

How is productivity measured?

Back 38

the amount of goods and services produced by each hour of worker time.

Front 39

What is productivity?

Back 39

the quantity of goods and services produced from each unit of labor output.

Front 40

What is the overall level of prices in the economy called?

Back 40

Inflation

Front 41

Why does society face a short-run tradeoff between inflation and unemployment?

Back 41

1.Increasing money stimulates spending
2. More consumption means more hiring
3. More hiring means less unemployment.

Front 42

What does the Phillips Curve illustrate?

Back 42

The indirectly proportional nature of Inflation and Unemployment.

Front 43

The tradeoff between inflation and unemployment is what?

Back 43

SHORT-run.

Front 44

People change behavior in response to what?

Back 44

Incentives.

Front 45

What is the source of living standards?

Back 45

productivity.

Front 46

What is the source of inflation?

Back 46

money growth.

Front 47

What is a business cycle?

Back 47

fluctuations in economic activity