Principles of Economics

Economics is…

the study of how society manages its scarce resources.

Scarcity refers to the __ nature of society’s resources.

limited

The ______ is whatever must be given up to obtain some item.

opportunity cost

Resources consist of:

1. land

2. labor

3. capital

4. human capital

margin

Additional amount, not total; Margins answer “how much” choices; evaluated at the edge or limit of a decision [continuous process]

Rational people make decisions by comparing __ costs and marginal benefits.

marginal

An __ is something that induces a person to act.

incentive

A _______ allocates resources through decentralized decisions of firms and households as they interact in markets for goods and services

market economy

__________ refers to the ability to own and control scarce resources.

property rights

A ________ is a situation where a market fails to allocate resources efficiently.

market failure

People face __ among alternative goals.

trade-offs

The true cost of something is its __ cost.

opportunity

Rational people think at the __ when making decisions.

margin

_____ can make everyone better off

Trade

markets usually lead to __ in economic activities.

efficiency

One person’s spending is another person’s __.

income

Government policies can change __.

spending