Principles Of Economics - Exam 1 Study Set With
Complete Solutions Latest Update
Economics - correct answers The study of how to best allocate scarce resources
Comes from greek words "oikonomos" - the one who manages the household
Scarcity - correct answers Limited nature of society's resources. The more scare something is, the more
valuable, expensive, and hard it is to find
10 Economic Principles - correct answers 1. People face trade off's
2. The cost of something is what you give up to get it
3. Rational people think at the margin
4. People respond to incentives
5. Trade can make everyone better off
6. Markets are usually a good way to organize economic activity
7. Governments can sometimes improve economic outcomes
8. A country's standard of living, depends on its ability to produce goods and services
9. Prices rise when the government prints too much money (inflation)
10. Society faces short run tradeoff's between inflation and unemployment
Efficiency - correct answers The property of society getting the most it can from scarce resources
Equality - correct answers The property of distributing economic prosperity uniforming among members of
society
Opportunity cost - correct answers What must be given up in order to obtain something else
If you want one opportunity you may need to miss another
, Rational People - correct answers People who have systematically and purposefully do the best they can to
achieve their objective
Marginal change - correct answers A small incremental adjustment to a plan of action
Incentive - correct answers Something that induces a person to act (ex. rewards cards)
Market Economy - correct answers An economy that allocates resources through the centralization of many
firms and households.
An economy based on spending money
Property Rights - correct answers The ability of an individual to own and exercise control over scarce resources
Market Failure - correct answers A system in which a market, left on its own, fails to allocate resources
efficiently
When the market fails to provide products to the target audience
Externality - correct answers Impact of one person's actuins in the well being of a bystander.
Ex. FEMA impacts Home Depot
Market Power - correct answers The ability of a single economic actor or a small group of actors to have
substantial influence on market influence
Productivity - correct answers The quantity of goods and services produced from each unity of labor input
Inflation - correct answers Increase int he average price we pay for goods and services
More money in rotation, the less it is worth
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