Principles of Economics Review

These flashcards cover key concepts from the principles of economics, including fundamental definitions, principles, market behaviors, and trade concepts.

What does efficiency in economics mean?

It means that society is getting the greatest benefits from scarce resources.

What is the definition of equality in economics?

It means that benefits are distributed uniformly among society's members.

What is one of the 10 principles of economics regarding trade-offs?

People face trade-offs when deciding to allocate resources to one purpose over another.

What is opportunity cost?

It is what you give up to get something else, including money or time.

What do rational people consider when making decisions?

They think at the margin, making decisions based on incremental changes.

How do rational people respond to incentives?

They change their behavior in response to changes in opportunity costs.

What is a positive economic statement?

It is a statement about what is, was, or will be, which can be tested against facts.

What is a normative economic statement?

It is about what ought to be done or valued and is based on subjective opinions.

How does the production possibilities model illustrate scarcity?

It shows the limits to what can be produced with available resources and technology.

What do points inside the PPF represent?

They represent inefficiency, where production of goods can increase without decreasing others.

What does the law of increasing opportunity cost indicate?

As production of a good increases, the opportunity cost of producing additional units rises.

What is comparative advantage?

It is the ability to produce a good at a lower opportunity cost than another producer.

What is the production possibilities frontier (PPF)?

It is a curve depicting the maximum feasible amounts of two goods that can be produced.

What happens to the PPF during economic growth?

The PPF shifts outward, indicating an increase in available resources or technology.

What is market equilibrium?

It is the point where quantity supplied equals quantity demanded.

What causes a market surplus?

It occurs when quantity supplied exceeds quantity demanded.

What is the impact of a tariff on trade?

Tariffs typically decrease imports and increase prices for domestic consumers.

What are the potential benefits of free trade?

Higher standards of living, increased variety of goods, and lower costs through economies of scale.