Economics - Chapter 1

Economics deals primarily with the concept of this

Scarcity

In a market economy, what does price reflect?

Value of a good society Cost to society of making the good

Equity

What you do with the goods in society

Define opportunity cost

What you give up by doing something else

Opportunity Cost

What you give up to get that item

College-age athlete who drop out of school to play sports

Are aware that their opportunity cost of attending college is high

How do people make decisions at the margin?

By comparing costs and benefits

Market Economy

Decisions are made by millions of firms and households

If the US gov. redistributes income from the rich to poor, how does this affect equity and efficiency?

Efficiency: The rich will not be happy that their money is going to people not working as hard as them, so they would complain that the gov. didn't distribute the money. Equity: If the gov. uses the money for programs for the poor. then the money would be well used.

In a market system, when people act in their own self-interest, they...

Help others even more than when they seek to help others

Efficiency

How well you distribute the goods throughout a society

Which is consistent with the Phillips Curve?

If we increase the rate of inflation; the rate of unemployment will temporarily fall

Economists understand that people respond to?

Incentives

Productivity

The amount of goods and services produced from each hour of a worker's time

Externality

The impact of one person's actions on the well-being of a bystander

What is the opportunity cost to you of attending college?

The time you will spend learning more than working to earn money. It costs money for college, but could be even more if living on your own.

The Phillips Curve illustrates?

The tradeoff between inflation and unemployment

"There is no such thing as free lunch" illustrates

To get one thing, we must give up something else