economics ch. 1

scarcity

the limited nature of society’s resource

economics

the study of how society manages its scarce resources

people face trade-offs (principle1)

to get one thing you want, you have to give up another thing you want

efficiency

the property of society getting the most its can from its scarce resources

equality

the property of distributing economic prosperity uniformly among the member of society

the cost of something is what you give up to get it (principle 2)

you decide to go to college. But the time you spent on learning is time that you are not using to get a job and earn money.

opportunity cost

whatever must be given up to obtain some item

rational people (rational people think at the margin Principle 3)

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

marginal change

an incremental adjustment to a plan of action

incentives (principle 4: people resond to incentives)

something that induces a person to act

trade can make everyone better off (principle 5)

there is competition among different families. They compete with one another to get jobs, but a family is not better off isolating itself. Families decided to specialize in what each one does the best and trade with one another.

market economy (principle 6: markets are usually a good way to organize economic activity)

an economy that allocated resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

property rights

the ability of an individual to own and exercise control over scarce resources

governments can sometimes improve market outcomes

one reason we need government is that the invisible hand can work its magic only if the government enforces the rules and maintains the institutions that are key to a market economy

market failure

a situation in which a market left on its own does not allocate resources efficiently

externality

the impact of one person’s actions on the well-being of a bystanders

market power

ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

productivity

the quantity of goods and services produced from each unit of labor input

inflation (principle 9: prices rise when the government print too much money)

an increase in the overall level of prices in the economy

business cycle

fluctuations in economic activity, such as employment and production

some nations have higher level of productivity

the main reason that some nations have higher average living standards than other is that

a. the richer nations have exploited the poorer ones

b. the governments of some nations have created more money

c. some nations have stronger laws protecting worker rights

d. some nations have higher levels of productivity

the government creating excessive amounts of money

if a nation has high and persistent inflation, the most likely explanation is ____

a. the government creating excessive amount of money

b. union bargaining for excessively high wages

c. the governments imposing excessive levels of taxation

d. firms using their market power to enforce excessive price hikes

lower; higher

if a government uses the tools of monetary policy to reduce the demand for goods and services, the likely result is _____ inflation and _______ unemployment in the short run