Chapter 1: Ten Principles of Economics

Business Cycle

The fluctuations in economic activity, such as employment and production.

Productivity

Explains the disparity in standards of living from country to country.

Property Rights

The ability of an individual to own and exercise control over resources.

Externality

The impact of one persons actions on the well- being of a bystander.

Incentives

Are key to analyzing how markets work.

Firms

________ decide who to hire and what to make, while Households decide which ________ to work for and what to buy.

Inflation

An increase in the overall price levels in the economy.

Trade

Allows countries to specialize in what they do best.

Market Failure

Occurs when the market does not allocate resources efficiently.

Invisible Hand

Relies on the ability of individuals to own Property Rights.

Equality

Means that the benefits from a society's resources are distributed evenly amongst its members.

Growth rate

Determines the growth rate of average income in a nation.

Market Economy

Resources in a(n) ________ are allocated through the decentralized decisions of firms and households as they interact in markets for goods and services.

Productivity and Living Standards

The relationship between ________ also has profound implications on policy- making.

Productivity

The quantity of goods and services produced from each unit of labor input.

Inflation

Is often caused by the growth in quantity of money.

Invisible Hand

The ________ is self- interest.

Rational people

Make decisions by comparing Marginal Benefits and Marginal Costs.