Ten Principles of Economics

These flashcards cover essential vocabulary and concepts from the lecture notes on the ten principles of economics.

Scarcity

The limited nature of society's resources.

Economics

The study of how society manages its scarce resources.

Trade-offs

The concept that to get one thing, we usually have to give up another.

Opportunity Cost

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

Rational People

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

Incentives

Something that induces a person to act; the prospect of a reward or punishment.

Market Economy

An economy that allocates resources through decentralized decisions of many households and firms.

Invisible Hand

A metaphor for the unseen forces that move the free market economy.

Market Failure

When the market fails to allocate society's resources efficiently.

Productivity

The amount of goods and services produced per unit of labor.

Scarcity

The limited nature of society's resources.

Economics

The study of how society manages its scarce resources.

Trade-offs (Principle 1)

The concept that to get one thing, we usually have to give up another.

Opportunity Cost (Principle 2)

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

Rational People

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

Marginal Thinking (Principle 3)

Rational decision-makers compare the marginal benefits and marginal costs to make choices, considering small incremental adjustments to an existing plan.

Incentives (Principle 4)

Something that induces a person to act; the prospect of a reward or punishment.

Benefits of Trade (Principle 5)

Specialization and exchange allow individuals and nations to consume a wider variety of goods and services at lower costs, making everyone better off.

Market Economy (Principle 6)

An economy that allocates resources through decentralized decisions of many households and firms.

Invisible Hand (Principle 6)

A metaphor for the unseen forces that move the free market economy, guiding self-interested individuals to promote general economic well-being.

Market Failure

When the market fails to allocate society's resources efficiently.

Role of Government in Markets (Principle 7)

Governments can improve market outcomes by protecting property rights, correcting market failures (externalities, market power), and promoting equity when the market fails to do so efficiently or fairly.

Productivity

The amount of goods and services produced per unit of labor.

Productivity and Standard of Living (Principle 8)

The more goods and services a country's workers can produce per hour, the higher its standard of living will be.

Inflation (Monetary Cause) (Principle 9)

Inflation, a general increase in prices, is typically caused by too much money chasing too few goods, often resulting from excessive printing of money by the government.

Short-Run Trade-off: Inflation vs. Unemployment (Principle 10)

In the short run, policies that expand economic activity (e.g., printing more money) tend to increase inflation but decrease unemployment, while contractionary policies have the opposite effect.