What is economics

Trade-offs are required because wants are unlimited, and resources are

scarce

Economics is the study of:

How society manages its scarce resources

A rational person does not act unless

The action produces marginal benefits that exceed marginal costs

Which of the following activities is most likely to produce an externality?

A student has a party in her dorm room

Which of the following products is less likely to produce an externality?

Food

An increase in the price of beef provides information which

Tells producers to produce more beef

Limited resources and unlimited wants

Scarcity

Study of how society manages its scarce resources

Economics

The property of society getting the most out of its scarce resources

Efficiency

The property of distributing output fairly among society’s members

Equity

Whatever is given up to get something else

opportunity cost

small, incremental adjustments to an existing plan

marginal changes

An economic system where interactions of households and firms in markets determine the allocation of resources

market economy

A situation in which the market fails to allocate resources efficiently

market failure

When one person’s actions have an impact on a bystander(third party)

Externality

The ability of an individual or group to substantially influence market prices. 

Market power

The case in which there is only one seller in the market

Monopoly

The amount of goods and services produced per hour by a worker

Productivity

An increase in the overall level of prices

Inflation

The short-run trade-off between inflation and unemployment

Philips curve

People make decisions by comparing costs and benefits at the

margin

the market value of all final goods and services produced within a country in a given period of time (divided by the population of that country)

Gross domestic product

the increase in the amount of goods and services produced in an economy in a given period of time

Economic growth

The ____ is  important for understanding the business cycle

Philips curve

fluctuations in economic activity such as employment

Business cycle

The organizations which buy these factors of production and use them to produce goods are referred to collectively as

firms

economic system is represented by

circular-flow diagram

buy foods and services from __

households, firms

__ use this money to pay for resources purchased from households

Firms

the amount of interaction between households and firms represents

the level of economic activity

all production and exchange activities

economic system

the total volume of purchases and selling in a period of time

economic activity

When the price of a good rises, consumer will buy __ price of petrol

less

When the price of a good rises, the producers will allocate _ resources to the production

more

observation which guides self-interest in promoting society’s economic well-being

invisible hand 

Who is the creator of invisible hand

Adam Smith

a measure of welfare based on the amount of goods and services a person’s income can buy.

standard of living

standard of living measured by 

real income per capita of the population

a system which relies on the private ownership of factors of production to produce goods

and services which are exchanged through a price mechanism and where production is operated primarily for profit

capitalist economic system

an economy that addresses the three key questions of the economic problem by allocating resou

market economy

economic activity organized by central planners who decided on the answers to the

fundamental economic questions

planned economic systems

the study of economy-wide phenomena, including inflation, unemployment and economic growth

macroeconomics

the study of how households and firms make decisions and how they interact in markets

microeconomics