Basic Economic Concepts Review.pdf

Basic Economic Concepts Review scarcity the limited nature of society’s resources Economics the study of how society manages its scarce resources  How people make decisions 01 Principle 1 People Face Trade-offs efficiency the property of society getting the most it can from...

Basic Economic Concepts Review scarcity the limited nature of society’s resources Economics the study of how society manages its scarce resources  How people make decisions 01 Principle 1 People Face Trade-offs efficiency the property of society getting the most it can from its scarce resources equality the property of distributing economic prosperity uniformly among the members of society  How people make decisions 01 Principle 1 People Face Trade-offs 02 Principle 2 The Cost of Something Is What You Give Up to Get It opportunity cost whatever must be given up to obtain some item  How people make decisions 01 Principle 1 People Face Trade-offs 02 Principle 2 The Cost of Something Is What You Give Up to Get It 03 Principle 3 Rational People Think at the Margin rational people people who systematically and purposefully do the best they can to achieve their objectives marginal change a small incremental adjustment to a plan of action  How people make decisions 04 Principle 4 People Respond to Incentives incentive something that induces a person to act  How people interact 05 Principle 5 Trade Can Make Everyone Better Off  How people interact 05 Principle 5 Trade Can Make Everyone Better Off 06 Principle 6 Markets Are Usually a Good Way to Organize Economic Activity market economy an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services  How people interact 05 Principle 5 Trade Can Make Everyone Better Off 06 Principle 6 Markets Are Usually a Good Way to Organize Economic Activity 07 Principle 7 Governments Can Sometimes Improve Market Outcomes property rights the ability of an individual to own and exercise control over scarce resources market failure a situation in which a market left on its own fails to allocate resources efficiently externality the impact of one person’s actions on the well-being of a bystander market power the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices  How the economy as a whole works 08 Principle 8 A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services productivity the quantity of goods and services produced from each unit of labor input  How the economy as a whole works 08 Principle 8 A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services 09 Principle 9 Prices Rise When the Government Prints Too Much Money inflation an increase in the overall level of prices in the economy  How the economy as a whole works 08 Principle 8 A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services 09 Principle 9 Prices Rise When the Government Prints Too Much Money 10 Principle 10 Society Faces a Short-Run Trade-off between Inflation and Unemployment business cycle fluctuations in economic activity, such as employment and production Thank You!