Macroeconomics Chapter 1: First Principles – Flashcards

decisions by an individual about what to do and what not to do (all economic activities involve individual choice)

1. Choices are Necessary Because Resources are Scarce 2. The True Cost of Something Is Its Opportunity Cost 3. "How Much" is a Decision at the Margin 4. People Usually Respond to Incentives, Exploiting Opportunities to Make Themselves Better Off

anything that can be used to produce something else

the educational achievements and skills of workers

there's not enough of the resource available to satisfy all the productive ways society wants to use it

what you must give up in order to get an item you want (in the end, all costs are opportunity costs)

comparison of costs and benefits of doing something

decisions about whether or not to do a bit more or a bit less of an activity

the study of marginal decisions

an opportunity to make one's self better off

my choices affect your choices, and vise versa

a person provides a good or services that other people want in return for different goods and services that he or she wants

1. There are gains from trade 2. Because people respond to incentives, markets move toward equilibrium 3. Resources should be used as efficiently as possible to achieve society's goals 4. Because people usually exploit gains from trade, markets usually lead to efficiency 5. When markets don't achieve efficiency, government intervention can help improve society's welfare

people can get more of what they want through trade than they could if they tried to be self sufficient

a situation in which different people each engage in a different task, specializing in those tasks that they are good at performing (the economy, as a whole, produces more when each person specializes in a task and trades with others)

a situation in which individuals can't make themselves better off by doing something different

describes an economy when it exploits all opportunies to make people better off without making other people worse off

fairness, opposite of efficient

1. One persons spending is another person's income 2. Overall spending sometimes gets out of line with the economy's productive capacity 3. Government policies can change spending