ECN 104 Midterm - ECN 104 Midterm Study Notes

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Chapter 1 Ten Principle of Economics 1112013 95500 AM The word economy comes from the Greek work for one who manages a household A household faces many decisionsIt ...

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ECN 104 Midterm Study NotesChapter 1: Ten Principles of Economics1) People face trade-offsEfficiency: the property of society getting the most it can from its scarce resources (thelimited nature of societys resources)Equity: the property of distributing economic prosperity fairly among the membersof societyEx: trade-off between work and leisure, buying a good or another one2) The Cost of Something is what you give up to Get itOpportunity cost: whatever must be given up to obtain some itemDecision makers should be aware of opportunity cost3) Rational People Think at the MarginRational people: people who systematically and purposefully do the best they canto achieve their objectivesMarginal changes: small incremental adjustments to a plan of action4) How people make DecisionsIncentive: something that induces a person to act5) Trade can make Everyone Better offProperty rights: the ability of an individual to own and exercise control overscarce resourcesEx: Trades between countries allow variety of goods6) Markets are a good way to Organize Economics ActivityMarket economy: an economy that allocates resources through the decentralized decisions ofmany firms and households as they interact in markets for goods and servicesAdam Smith observed that households and firms interacting in markets act as if they areguided by an invisible hand (COORDINATES TO PRICE SYSTEM) that leads themto desirable market outcomes7) Governments can sometimes Improve M

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