12 Principles of Economics – Flashcards
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People must make choices b/c resources are scarces
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Principle of Individual Choice #1
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The opportunity cost of an item, what you must give up in order to get it is its true cost
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Principle of Individual Choice #2
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"How much" decisions require make trade off at the margins: comparing the costs benefits of doing a little bit more of an activity verse us doing a little bit less.
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Principle of Individual Choice #3
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people usually respond to incentives, exploiting opportunities to make themselves better off.
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Principle of Individual Choice #4
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There are gains from trade
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Principle of the Interaction of Individual Choice #5
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B/c people respond to incentives, markets move towards equilibrium.
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Principle of the Interaction of Individual Choice #6
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Resources should be used as efficiently as possible to achieve society's goals.
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Principle of the Interaction of Individual Choice #7
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B/c people usually exploit gains from trade, markets usually lead to efficiency.
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Principle of the Interaction of Individual Choice #8
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when markets don't achieve efficiency, gov't intervention can improve society's welfare.
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Principle of the Interaction of Individual Choice #9
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One person's spending is another person's income
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Principle of economy-wide interactions #10
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Overall spending sometimes gets out of line w/ the economy's productive capacity.
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Principle of economy-wide interactions #11
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Gov't policies can change spending
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Principle of economy-wide interactions #12
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A system for coordinating society's productive activities
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economy
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the social science that studies the production, distribution, and consumption of goods and services.
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economics
