Ten Principles of Economics chpt 1 Eco 101

What is scarcity?

Resources are limited, so society cannot produce everything people want.

What is economics?

The study of how society manages its scarce resources.

What does “people face trade-offs” mean?

To get one thing, you usually must give up something else.

What is efficiency?

Getting the most from scarce resources (size of the economic pie).

What is equality?

Distributing economic prosperity evenly among society.

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What is opportunity cost?

Whatever must be given up to obtain something.

What does “rational people think at the margin” mean?

People make decisions by comparing marginal benefits and marginal costs.

What is a marginal change?

A small incremental adjustment to a plan of action.

When should a rational person take action?

When marginal benefit exceeds marginal cost.

What is an incentive?

Something that induces a person to act.

Why does trade make everyone better off?

It allows specialization and access to more goods at lower cost.

What is a market economy?

An economy where decisions are made by households and firms instead of a central planner.

What is the “invisible hand”?

Markets guide self-interested buyers and sellers toward efficient outcomes through prices.

Why can government improve market outcomes?

To enforce rules, protect property rights, promote efficiency, and promote equality.

What is market failure?

When a market does not allocate resources efficiently on its own.

What is an externality?

The impact of one person’s actions on a bystander.

What is market power?

The ability to influence market prices

What determines a country’s standard of living?

Productivity (output per unit of labor).

What causes inflation in the long run?

Excessive growth in the money supply.

What is the short-run trade-off in the economy?What is the short-run trade-off in the economy?

Lower unemployment usually comes with higher inflation.