EC 101 - Principles

Invisible Hand

________: a way in which an individuals pursuit of self- interest can lead, without the individual intending it, to good results for society as a whole.

Trade

________- off: comparison of costs and benefits of doing something.

Opportunity cost

________: what you must give up in order to get something, the net benefit of the next best alternative.

Specialization

________: a country should ________ in the product that they have comparative advantage.

Market Failure

________: the point at which the individual pursuit of self interest found in markets makes society worse off, that is, the market outcome is inefficient.

Absolute advantage

________: uses fewer inputs to produce a good.

Principle 1

choices are necessary because resources are scarce

Scarce

a resource is scarce when there is not enough of the resource available to satisfy all the various ways a society wants to use it

Trade-off

comparison of costs and benefits of doing something

Opportunity cost

 what you must give up in order to get something, the net benefit of the next best alternative

Principle 2

the true cost of something is opportunity cost

Opportunity cost

 involves two items, monetary costs plus subjective costs

Market economy

an economic system in which the main form of economic organization is the firm, in which the private owners of capital goods hire labor to produce goods and services for sale of markets for projects

Command Economy

centrally planned economic system, the government has been the institution controlling production and deciding how goods should be distributed, and to whom

China

quota of food and water, no more, planned out

Invisible Hand

a way in which an individuals pursuit of self-interest can lead , without the individual intending it, to good results for society as a whole

Market Failure

the point at which the individual pursuit of self interest found in markets makes society worse off, that is, the market outcome is inefficient

Offshoring

outsourcing, sending work to other countries

Principle 3

There are gains from trade

Absolute advantage

uses fewer inputs to produce a good

Comparative advantage

greatest absolute advantage or least productivity disadvantage (comparatively better)

Specialization

a country should specialize in the product that they have comparative advantage

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