ECON 2010 Final Exam| CH 11, CH 12, CH 13, CH 14, CH
15, CH 17| New
Scarcity
the limited nature of society's
resources
Economics
the study of how society manages
its scarce resources
1st Principle of Economics
people face tradeoffs
2nd Principle of Economics
the cost of something is what you give up to get it
Oppurtunity Cost
whatever must be given up to obtain a certain item
3rd Principle of Economics
ra!onal people think at the margin
ra!onal people
people who systema!cally and purposefully do the best they can to achieve their objec!ves
marginal changes
incremental adjustments to an exis!ng plan used a%er evalua!ng costs and benefits
4th Principle of Economics
people respond to incen!ves
incen!ve
something that induces a person to act (prospect of reward or punishment)
5th Principle of Economics
,trade can make everyone be+er off
6th Principle of Economics
markets are usually a good way to organize economic ac!vity
market
a group of buyers and sellers
market economy
allocates resources through the decentralized decision of many households and firms as they
interact in markets
invisible hand of the market
Adam Smith's The Wealth of Na!ons explains households and firms act as if led by this to
promote general economic well-being
7th Principle of Economics
governments can some!mes improve market outcomes
Role of Government
enforce property rights
Market Failure
when the market fails to allocate society's resources efficiently
externali!es
when the produc!on or consump!on of a good affects bystanders
Market power
a single buyer or seller has substan!al influence on market price (e.g. monopoly)
public policy
___________ may promote efficiency.
government
_____________ may alter outcomes to promote equity
8th Principle of Economics
a country's standard of living depends on its ability to produce goods and services
, produc!vity
the amount of goods and services produced per unit of labor
9th Principle of Economics
prices rise when the government prints too much money
infla!on
increases in the general price levels which are, in the long run, almost always caused by
excessive growth in the quan!ty of money which causes the value of money to fall
10th Principle of Economics
society faces a short-run tradeoff between infla!on and unemployment
two roles of economists
scien!sts (try to explain the world) and policy advisors (try to improve the world)
scien!fic method
the dispassionate development and tes!ng of theories about how the world works
assump!ons
simplify the complex world to make it easier to understand
model
a highly simplified representa!on of a more complicated reality
microeconomics
the study of how households and firms make decisions and how they interact in markets
macroeconomics
the study of economy-wide phenomena, including infla!on, unemployment, and economic
growth
posi!ve statements
describe the world as it is
norma!ve statements
describe the world as it should be
Produc!on Possibili!es Fron!er (PPF)
15, CH 17| New
Scarcity
the limited nature of society's
resources
Economics
the study of how society manages
its scarce resources
1st Principle of Economics
people face tradeoffs
2nd Principle of Economics
the cost of something is what you give up to get it
Oppurtunity Cost
whatever must be given up to obtain a certain item
3rd Principle of Economics
ra!onal people think at the margin
ra!onal people
people who systema!cally and purposefully do the best they can to achieve their objec!ves
marginal changes
incremental adjustments to an exis!ng plan used a%er evalua!ng costs and benefits
4th Principle of Economics
people respond to incen!ves
incen!ve
something that induces a person to act (prospect of reward or punishment)
5th Principle of Economics
,trade can make everyone be+er off
6th Principle of Economics
markets are usually a good way to organize economic ac!vity
market
a group of buyers and sellers
market economy
allocates resources through the decentralized decision of many households and firms as they
interact in markets
invisible hand of the market
Adam Smith's The Wealth of Na!ons explains households and firms act as if led by this to
promote general economic well-being
7th Principle of Economics
governments can some!mes improve market outcomes
Role of Government
enforce property rights
Market Failure
when the market fails to allocate society's resources efficiently
externali!es
when the produc!on or consump!on of a good affects bystanders
Market power
a single buyer or seller has substan!al influence on market price (e.g. monopoly)
public policy
___________ may promote efficiency.
government
_____________ may alter outcomes to promote equity
8th Principle of Economics
a country's standard of living depends on its ability to produce goods and services
, produc!vity
the amount of goods and services produced per unit of labor
9th Principle of Economics
prices rise when the government prints too much money
infla!on
increases in the general price levels which are, in the long run, almost always caused by
excessive growth in the quan!ty of money which causes the value of money to fall
10th Principle of Economics
society faces a short-run tradeoff between infla!on and unemployment
two roles of economists
scien!sts (try to explain the world) and policy advisors (try to improve the world)
scien!fic method
the dispassionate development and tes!ng of theories about how the world works
assump!ons
simplify the complex world to make it easier to understand
model
a highly simplified representa!on of a more complicated reality
microeconomics
the study of how households and firms make decisions and how they interact in markets
macroeconomics
the study of economy-wide phenomena, including infla!on, unemployment, and economic
growth
posi!ve statements
describe the world as it is
norma!ve statements
describe the world as it should be
Produc!on Possibili!es Fron!er (PPF)
