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https://quizlet.com/_3nya9q

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1. People Face Trade-Offs
2. The cost of something is what you give up to get it
3. Rational people think at the margin
4. People respond to incentives
5. Trade can make everyone better off
6. Markets are usually a good way to organize economic activity
7. Governments can sometimes improve market outcomes
8. A country's standard of living depends on its ability to produce goods and services
9. Prices rise when the government prints too much money
10. Society faces a short-run trade-off between inflation and unemployment

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efficiency
equity

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Principle 2: The cost of something is what you give up to get it

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Principle 2: The cost of something is what you give up to get it

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opportunity cost

implicit cost

explicit cost

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Principle 3: Rational people think at the margin

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Principle 3: Rational people think at the margin

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rational people
marginal changes

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Principle 4: people respond to incentives 

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Principle 4: people respond to incentives 

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incentive

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Principle 6: Markets are usually a good way to organize economic activity

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Principle 6: Markets are usually a good way to organize economic activity

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market economy
the "invisible hand" theory

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Principle 7: Governments can sometimes improve market outcomes

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Principle 7: Governments can sometimes improve market outcomes

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market failure

externality

market power

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Principle 8: A country's standard of living depends on its ability to produce goods and services

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Principle 8: A country's standard of living depends on its ability to produce goods and services

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productivity

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Principle 9: Prices rise when the government prints too much money

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Principle 9: Prices rise when the government prints too much money

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inflation

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efficient markets do not ensure equality

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incentives influence our behavior and our choices

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incentives influence our behavior and our choices

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voluntary exchange (trade) makes everyone better off 

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voluntary exchange (trade) makes everyone better off 

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gains happen when benefits > cost

... cost-benefit analysis

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market prices reflect relative scarcity 

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market prices reflect relative scarcity 

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1. households and firms do what's best for themselves and do what's best for society
2. minimal government intervention

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unintended social benefits of individual self-interested actions

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Governments intervene in market economies to...

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Governments intervene in market economies to...

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1. promote efficiency
2. promote equity

NOT THE SAME THING

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markets fail because of externalities or market power

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markets fail because of externalities or market power

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higher productivity = higher standard of living

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higher productivity = higher standard of living

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primary cause of inflation is the growth in the quantity of money

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primary cause of inflation is the growth in the quantity of money

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as unemployment rates increases, prices fall (inflation decreases)

as inflation increases, unemployment rates decreases

INVERSES