ECN211 Exam 1 Review ASU

Ten Principes - Answer- Principle 1: People face tradeoffs Principle 2: The cost of something what you give up getting it Principle 3: Rational people think at the margin Principle 4: People respond to incentives Principle 5: Trade can make everyone better off Principle 6: Markets are usually a good way to organize economic Principle 7: Government can sometimes improve market outcomes Principle 8: A country's standard of living depends on its ability to produce goods and services Principle 9: Prices rise when government prints too much money Principle 10: Society faces a short-run trade off between inflation and unemployment First 4 principles have to do with what? - Answer- How people make descisions What do the last 4 principles have to do with? - Answer- Productivity are the ultimate source of living Scarcity - Answer- The limited nature of society's resources Economics - Answer- The study of how society manages its scarce resources The economist plays 2 roles - Answer- Scientist: Trying to explain the world Policy Advisers: Trying to improve the world Circular-flow diagram is what? - Answer- A visual model of the economy, slows how dollars and goods and services flow through markets among households and firms Factors of production are defined as? and what are some examples? - Answer- the resources the economy uses to produce goods and services including 1. Labor 2. Land 3. Capital (buildings and machines used in production) Households in the circular-flow diagram do what? - Answer- 1. Own the factors of production, sell/rent them to firms for income 2. Buy and consume goods and services Firms in the circular-flow diagram do what? - Answer- 1. Buy/hire factors of production, use them to produce goods and services 2. Sell goods and services for wages, rent, and profit PPF is a gra