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Questions and Answers
Scarcity means that society has limited resources and cannot produce all the goods and services people wish to have.
True
The opportunity cost of a decision is the value of the next best alternative that must be given up.
True
Efficiency means getting the most benefits from scarce resources, while equality refers to distributing those benefits uniformly across society.
True
Public policies that promote greater equality always lead to greater economic efficiency.
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Economics only focuses on how individuals make decisions, not how they interact with others or how the economy works as a whole.
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Adam Smith’s concept of the "Invisible Hand" suggests that markets are typically an effective way to organize economic activity.
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Governments always improve market outcomes by intervening in the economy.
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Microeconomics deals with aggregate phenomena such as inflation and unemployment.
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Unemployment insurance is an example of a public policy that trades off efficiency for greater equality.
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Economists study how people interact in society and the implications of these interactions on markets and resources.
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Study Notes
Scarcity and Resources
- Society faces limited resources, meaning it cannot produce everything people desire.
- Opportunity cost represents the value of the best alternative foregone when making a choice.
Efficiency and Equality
- Efficiency involves maximizing benefits from scarce resources.
- Equality aims to distribute benefits evenly across society.
- Policies promoting greater equality do not always lead to increased economic efficiency.
Economic Principles
- Economics studies individual decision-making, as well as interactions and overall economic functioning.
- Adam Smith's "Invisible Hand" theory suggests markets effectively guide economic activity.
- Government intervention in the economy does not always improve market outcomes.
Microeconomics and Macroeconomics
- Microeconomics focuses on individual decision-making and specific markets.
- Macroeconomics examines broader economic trends, such as inflation and unemployment.
Policy Trade-offs
- Unemployment insurance exemplifies a policy balancing greater equality with potential efficiency reductions.
Economics as an Interdisciplinary Field
- Economists study how people interact within societies and the impact of these interactions on markets and resource allocation.
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