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Econ 203 Exam 1 || very Flawless.
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People face trade-offs correct answers (principle 1 of economics) To get one thing, you have to give up something else. Making decision requires trading off one goal against another. efficiency correct answers the property of a resource allocation of maximizing the total surplus received by all ...

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  • August 15, 2024
  • 9
  • 2024/2025
  • Exam (elaborations)
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  • people face trade offs

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  • Econ 203
  • Econ 203

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Econ 203 Exam 1 || very Flawless.
People face trade-offs correct answers (principle 1 of economics) To get one thing, you have to
give up something else. Making decision requires trading off one goal against another.

efficiency correct answers the property of a resource allocation of maximizing the total surplus
received by all members of society. Refers to the size of the economic pie

equality correct answers the property of distributing economic prosperity uniformly among the
members of society. Refers to how the pie is divided into individual slices

The cost of something is what you give up to get it correct answers (principle 2 of economics)
decision makers have to consider both the obvious and implicit costs of their actions as well as
the benefits of alternatives

Rational people think at the margin correct answers (principle 3 of economics) rational people
systematically and purposefully do the best they can to achieve their objectives. These decision
makers weigh marginal changes and will only take a certain action if the marginal benefit
exceeds the marginal cost

People respond to incentives correct answers (principle 4 of economics) an incentive is
something that induces a person to act, such as the prospect of a punishment of reward. Because
rational people make decisions by comparing costs and benefits, they respond to incentives. For
example, a higher price in a market provides an incentive for buyers to consume less and an
incentive for sellers to produce more.

Trade can make everyone better off correct answers (principle 5 of economics) trade allows each
person to specialize in the activities they do best, and by trading with others people can buy a
greater variety of goods and services at lower cost.

Markets are usually a good way to organize economic activity correct answers (principle 6 of
economics) centrally planned economies are inefficient due to the impossibility of the
government knowing what everyone needs. The market economy prevails, where firms and
households are driven by prices and self-interest, because of the stabilizing interaction between
buyers and sellers, an 'invisible hand' leads them to desirable market outcomes

market economy correct answers an economy that allocates resources through the decentralized
decisions of many firms and households as they interact in markets for goods and services.

Government can sometimes improve market economy correct answers (principle 7 of
economics) the government is necessary within economics to enforce rules (property rights and
laws) and maintain institutions that are key to a market economy. In the presence of externalities
or market power, well-designed public policy can enhance economic efficiency, preventing
market failure. In addition, to improve economic equality, the government can intervene with
public policies such as the income tax and the welfare systems aiming to achieve a more equal
distribution of economic well-being, promoting equality.

, property rights correct answers the ability of an individual to own and exercise control over
scarce resources

market failure correct answers a situation in which a market left on its own fails to allocate
resources efficiently. Possible cause is 'externalities'

externality correct answers the impact of one person's actions on the well-being of a bystander.
Classic example is pollution

market power correct answers the ability of a single economic actor (or small group of actors) to
have a substantial influence on market prices

A country's standard of living depends on its ability to produce goods and services correct
answers (principle 8 of economics) there are huge differences in standards of living across the
globe, almost all variation in living standards is attributable to differences in countries'
productivity. In nations where workers produce a large quantity of goods and services per unit of
time, most people enjoy a high standard of living, and vice versa. Similarly, the growth rate of a
nation's productivity determines the growth rate of its average income.

productivity correct answers the quantity of goods and services produced from each unit of labor
input

Prices rise when the government prints too much money correct answers (principle 9 of
economics) large and persistent inflation occurs when the quantity of money grows. When a
government creates large quantities of the nation's money, the value of the money falls.

inflation correct answers an increase in the overall level of prices in the economy

Society faces a short-run trade-off between inflation and unemployment correct answers
(principle 10 of economics) the short-run effects of monetary injections include: - increasing the
amount of money in the economy stimulates the overall level of spending and thus the demand
for goods and services, - higher demand may over time cause firms to raise their prices, but in
the meantime, it also encourages them to hire more workers and produce a large quantity of
goods and services, - more hiring means lower unemployment. This short-run trade-off plays a
key role in the analysis of the 'business cycle'

business cycle correct answers fluctuations in economic activity, such an unemployment and
production.

circular-flow diagram correct answers a visual model of the economy that shows how dollars
flow through markets among households and firms. In the markets for goods and services,
households are buyers and firms are sellers. In particular, households buy the output of goods
and services that firms produce. In the markets for the factors of production, households are
sellers and firms are buyers. In these markets, households provide the inputs that firms use to
produce goods and services.

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