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Midterm

Econ Midterm.docx

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Department
Economics
Course
ECON 102
Professor
All Professors
Semester
Fall

Description
Chapter 1: Economy: “Greek word for “one who manages a house-hold.” Scarcity: The limited nature of society’s resources Economics: the study of how society manages its scarce resources Principle 1: People Face Tradeoffs Efficiency: The property of society getting the most it can from its scarce resources Equity: The property of distributing economic prosperity fairly among the members of society. 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. 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 Changes: small incremental adjustments to a plan of action. Principle 4: People Respond to Incentives Principle 5: Trade can make everyone better off 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 intereact in markets for goods and services. 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 left on its own fails to allocate resources efficiently Externality: the impact of one person’s actions on the well-being of a bystander (pollution) Market power: the ability of a single economic actors) to have a substantial influence on market prices Principle 8: A Country’s Standard of Living Depends on its ability to produce goods and services. Principle 9: Prices rises when the government prints too much money Principle 10: Society Faces a short0run tradeoff between inflation and unemployment. - Increasing the amount of money in the economy stimulates the overall level of spending and thus the demand for goods and services. - Higher demand may, over time, cause firms to raise their prices, but in the meantime, it also encourages them to increase the quantity of goods and services they produce and to hire more workers to produce those goods and services. -More hiring means lower unemployment Chapter 2: Circular-flow diagram: a visual model of the economy that shows how dollars flow through markets among households and firms 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 technology Microeconomics: The study of how households and firms make decisions and how they interact in markets. Macroeconomics: the study of economy-wide phenomena, including inflation, unempl
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