Economics

• What does the word "economy" derive from?


  It comes from the Greek word "oikonomos," meaning "one who manages a household."
• What is the primary focus of economics?


  It is the study of how society manages its scarce resources.
• What are the principles of economics regarding trade-offs and costs?


  • Principle 1: People face trade-offs; to get something we like, we usually have to give up something else.
  • Principle 2: The cost of something is what you give up to get it; decisions require comparing costs and benefits.
• What does it mean when economists say "rational people think at the margin"?


  It means rational people make decisions by comparing marginal benefits and marginal costs.
• What is an incentive in economics?


  An incentive is something that induces a person to act, such as a punishment or reward.
• What are the principles of trade and market organization?

  • Principle 5: Trade can make everyone better off; it is not a zero-sum game.
  • Principle 6: Markets are usually a good way to organize economic activity; decisions are made by firms and households.
• What role does the government play in the economy?


  The government enforces rules and maintains institutions key to a market economy.
• What is market failure?


  Market failure refers to a situation where the market fails to produce an efficient allocation of resources.
• What is the relationship between a country's standard of living and its productivity?


  A country's standard of living depends on its ability to produce goods and services.
• What causes inflation according to the study material?

  Inflation is caused by growth in the quantity of money in the economy.
• What is the short-run trade-off society faces between inflation and unemployment?


  • Increasing the money supply stimulates spending and demand for goods and services.
  • Higher demand may lead to higher prices but also encourages hiring, reducing unemployment.
• How does increasing the money supply affect employment in the short run?


  It encourages firms to hire more workers, leading to lower unemployment.
• describe a small incremental adjustment to an existing plan of action.

  marginal change
• describe a small incremental adjustment to an existing plan of action.

  marginal change
• Define economics


  how society manages its scarce resources
• what Greek word does economy come from

  oikonomos
• what does oikonomos mean


  household management
• when market mechanisms do not yield an efficient allocation of resources


  market failure
• an impact of one's actions on others' well-being


  externality
• what replaces central planning in a market economy


  decisions by firms and households
• what causes high inflation


  creating excessive amounts of money
• what primarily determines the growth of a nation's income

  nation's productivity growth rate
• what determines a nations' standard of living


  productivity in producing goods and services
• incrementally alters an existing plan

  marginal change
• what principles does people face trade offs


  principle 1
• what principle does the cost of something is what you give up to get it


  principle 2
• what principle does rational people think at the margin


  principle 3
• what principle does people respond to incentives


  principle 4
• it is something such as punishment or reward that induces a person to act

  incentives
• what principle does trade can make everyone better off


  principle 5
• what principle does markets are usually a good way to organize economic activity


  principle 6
• where does firms and households interact


  marketplace
• it decides whom to hire and what to make

  firms
• looks at the price when determining how much to demand


  buyers
• looks at the price when determining how much to demand


  buyers
• what principle does governments can sometimes improve market outcome


  principle 7
• What are the fundamental forces that drive market economies?


  Supply and demand
• How do supply and demand affect the economy?


  They determine the quantity of goods produced and the prices at which they are sold
• What is a market?


  A market is a collection of buyers and sellers of a particular good or service
• Who determines the demand for a product?

  The buyers