ECON 131-Chapter 1 – Flashcards
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Scarcity
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Economics deals primarily with the concept of
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resources are scarce
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The overriding reason why households and societies face many decisions is that
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Land, People, Machines
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A society allocates its scarce resources to various jobs. These scarce resources include
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Scarcity
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When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing
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How society manages its scarce resources
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Economics is the study of
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The combined actions of millions of households and firms
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In most societies, resources are allocated by
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Scarcity
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What term refers to the property that society has limited resources and therefore cannot produce all the goods and services people wish to have?
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People must face trade-offs
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The phrase "no such thing as a free lunch" means
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People face trade-offs
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Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so she can only buy one. This illustrates the basic concept that
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A trade-off because of reduced incomes to firms owners and workers
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When society requires that firms reduce pollution, there is
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Society is getting the maximum benefits from its scarce resources
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Efficiency means that
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equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources
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The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that
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Equality is improved but efficiency is not
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When the government redistributes income from the wealthy to the poor,
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The pie gets smaller, and there will be less pie at all
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As a result of a successful attempt by government to cut the economic pie into more equal slices,
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Understand that the opportunity cost of attending college is very high.
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High-school athletes who skip college to become professional athletes
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is more equal but less efficient for society.
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Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth
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the wages given up to attend school
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For most students, the largest single cost of a college education is
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the value of the best opportunity a student gives up to attend college
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The opportunity cost of going to college is
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marginal benefit is greater than the marginal cost.
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A rational decision maker takes an action only if the
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government guiding economic activity. Today many countries that had this system have abandoned it.
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Central Planning Refers to
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the free market
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The "invisible hand" refers to
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people's pursuit of self-interest
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The "invisible hand" works to promote general well-being in the economy primarily through
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self-interest and prices
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In a market economy, economic activity is guided by
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1) markets sometimes fail to produce a fair distribution of economic well-being 2) markets sometimes fail to produce an efficient allocation of resources. 3) property rights have to be enforced.
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A rationale for government involvement in a market economy is
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government intervention
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If an externality is present in a market, economic efficiency may be enhanced by
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refers to the quantity of goods and services produced from each unit of labor input.
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The term "productivity"
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Productivity
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What is the most important factor that explains differences in living standards across countries?
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excessive growth in the quantity of money
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Large or persistent inflation is almost always caused by
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Lower unemployment and higher inflation
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In the short run, an increase in the money supply is likely to lead to
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a decrease in the growth rate of the quantity of money will be accompanied by an increase in the unemployment rate.
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The short-run tradeoff between inflation and unemployment implies that, in the short run,
