Econ Final Chapter 1

Incentives
rewards and penalties that motivate behavior
Example of incentive
Ship & dying men
Invisible Hand
A term used by Adam Smith to describe his belief that individuals seeking their economic self-interest actually benefit society more than they would if they tried to benefit society directly.
Drug lag
you can die because a unsafe drug has been created & you can die because a safe drug hasnt been created
Opportunity cost
what you are giving up
Inflation
increase in the general level of prices
The main incentive for business activity is
profit
what best illustrates the concept of Adam Smith’s “invisible hand”?
A Vietnamese farmer grows rice; an exporter ships it to the United States, and a grocer in New York sells it to a customer.
The opportunity cost of a choice is:
the value of the next best opportunity foregone.
What is thinking on the margin?
Making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity or a little less.
One benefit of trade is that it:
allows for increased specialization and mass-production techniques that lower per unit costs of productio
institutions that help foster the appropriate incentives for economic growth?
a dependable legal system, property rights, and competitive and open markets
Institutions that support economic growth are the ones that:
have incentives for their workers
Booms and busts refer to the:
fluctuations in economic activity over time.
Which of the following explains why economic booms and busts cannot be avoided?
The economy is always being struck by unavoidable shocks.
If the central bank creates too much money, _____ is the result. If the central bank doesn’t create enough money, an economic _____ is the result.
inflation & slowdown
The average starting salary of economics majors is just behind that of:
chemical and nuclear engineering majors.

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