Economics 151
What is the Eight Principle of Economics?
A Country's Standard of Living Depends on its Ability to Produce Goods and Services -Higher Productivity, higher living standards
David Ricardo
-Developed the principle of comparative analysis
What do economists study?
-How people make decisions. -How people interact with each other. -Analyze forces and trends that affect the economy as a whole.
Production Possibilities Frontier
A graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production terminology.
Market Failure
A situation in which a market left on its own fails to allocate resources efficiently.
Marginal Change
A small incremental adjustment to a plan of action.
Circular-Flow Diagram
A visual model of the economy that shows how dollar flow through markets among households and firms.
Market Economy
An economy that allocates resources through the decentralized decisions of many firms and households as they interact in market in markets for goods and services.
Inflation
An increase in the overall level of prices in the economy.
Positive Statements
Claims that attempt to describe the world as it is.
Normative Statements
Claims that attempt to prescribe how the world should be.
Business Cycle
Fluctuations in economic activity, such as employment and production.
Imports
Goods produced abroad and sold domestically.
Exports
Goods produced domestically and sold abroad.
What is the Seventh Principle of Economics?
Governments Can Sometimes Improve Market Outcomes -Need Government: Enforce rules, maintain institutions, promote efficiency and equality.
What is the Sixth Principle of Economics?
Markets are usually a Good Way to Organize Economic Activity. -Market Economy: Allocates resources
What is the First Principle of Economics?
People Face Trade Offs. -Trade off one good against another. -Ex: Clean environment vs. high levels of income. -Efficiency vs. Equality.
What is the Fourth Principle of Economics?
People Respond to Incentives -Higher Prices --> Buyers consume less, Sellers produce more. -Rise of gas prices --> Incentive to conserve gas.
Rational People
People who systematically and purposefully do the best they can to achieve their objectives.
What is the Ninth Principle of Economics?
Prices Rise When the Government Prints Too Much Money -Inflation
What is the Third Principle of Economics?
Rational People think at the Margin -Marginal (additional) Benefits and/or costs -Rational decision maker: Take action only if the Marginal benefits > Marginal costs.
What it the Tenth Principle of Economics?
Society Faces a Short-Run Trade Off Between Inflation and Unemployment -Monetary injections stimulates level of spending
What is the Second Principle of Economics?
The Cost of Something is What you Give Up To Get It. -Trade offs and Opportunity cost
Market Power
The ability of a single economic actor (or small group of actors) to have a substantial influence on market prices.
Property Rights
The ability of an individual to own and exercise control over scarce resources.
Comparative Advantage
The ability to produce a good at a lower opportunity cost than another producer.
Absolute Advantage
The ability to produce a good using fewer inputs than another producer.
Externality
The impact of one person's actions on the well-being of a bystander.
Scarcity
The limited nature of society's resources.
Equality
The property of distributing economic prosperity uniformly among the members of society.
Efficiency
The property of society getting the most it can from its scarce resources.
Productivity
The quantity of goods and services produced from each unit of labor input.
Macroeconomics
The study of economy wide phenomena, including inflation, unemployment, and economic growth.
Microeconomics
The study of how households and firms make decisions and how they interact in markets.
Economics
The study of how society manages it's scarce resources.
Economics
The study of how society manages its scarce resources.
What is the Fifth Principle of Economics?
Trade Can Make Everyone Better Off -Trade: Allows for each person to specialize in the activities one does best.
Opportunity Cost
Whatever must be given up to obtain some item.
Incentive
something that induces a person to act.
