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first test def

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Jack Carr

How people make decisions: 1. ppl face trade-offs a. guns vs butter i. national defence vs, consumer goods to raise standard of living b. environment vs. high income i. more expensive for firms=lower profit 2. cost of smth is what you guve up to get it 3. rational ppl think at the margin 4. ppl respond to incentives How Ppl Interact 5. trade can make everyone better off 6. markets are usually a good way to organize economic activity 7. govt can sometimes improve way to organize economic activity How the Economy as a Whole Works 8. a countrys standard of living depends on its ability to produce goods and services Goods and Services 9. prices rise when the govt prints too much money 10. society faces a short-run trade-off between inflation and unemployment Scarcity: the limited nature of societys resources Economics: the study of how society manages its scarce resources 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 - efficiency refers to the size of the economic pie and equity refers to how the pie is divided, often when govt policies are being designed, these two goals conflict o ie, govt employment policies, welfare system, taxeswhile govt cutting pie, pie gets smaller, ppl less motivated to work hard - ppl more likely to make good decisions if they know their options Opportunity cost: whatever must be given up to obtain some item 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 - adjustments around the edges of what youre doing Incentive: something that induces a person to act 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 Property rights: the ability of an individual to own and exercise control over scarced resources - need the govt so that the invisible hadn would workforces ppl to follow laws - also need govt to promote efficiency and equity Market failure: a situation in which a market left on its own fails to allocate resources efficiently
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