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21 Cards in this Set
- Front
- Back
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scarcity |
the limited nature of society's resources |
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economics |
the study of how society manages its scarce resources, e.g. how people decide what to buy, and how much to work, save and spend |
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efficiency |
when society gets the most from its scarce resources |
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equality |
when prosperity is distributed uniformly amoung society's member |
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opportunity cost |
cost of any item is whatever must be given up to obtain it |
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What costs do rational people consider when making decisions? |
Marginal Cost and Marginal Benefit |
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sunk cost |
cost that cannot be recovered, regardless of what is done in the future, because it has already been incurred |
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incentive |
something that induces a person to act i.e. the prospect of a reward or punishment |
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How can trade make everyone better off? |
rather than being self-sufficient, people can specialize in producing one good or service and exchange it for other goods. This goes for countries also. |
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market |
a group of buyers and sellers (need not be in a single location) |
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What does "organizing economic activity" mean? |
It means determining what goods to produce, how to produce them, how much of each to produce, and who gets them |
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market economy |
allocates resources through the decentralized decisions of many households and firms as they interact in markets |
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How can governments sometimes improve market outcomes? |
By enforce property rights with police and courts |
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market failure |
when the market fails to allocate society's resources efficiently |
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externality |
when the production or consumption of a good affects bystanders (e.g. pollution) |
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market power |
a single buyer or seller has substantial influence on market price (e.g. monopoly) |
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What can promote efficiency? |
public policy |
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Government may alter market outcome to...? |
promote equity (tax or welfare policies can change how the economic "pie" is divided |
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What is the most important determinant of living standards? |
productivity, the amount of goods and services produced per unit of labor |
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inflation |
increases in the general level of prices |
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Society faces a short-run tradeoff between ________ and __________. |
inflation and unemployment. (many economic policies push inflation and unemployment in opposite directions) |
