SocSci1b

The word economy comes from the Greek word for “_________________.”

_________________means that society has limited resources and therefore cannot produce all the
goods and services people wish to have.

_________________is the study of how society manages its scarce resources.

_________________therefore study how people make decisions: how much they work, what they buy,
how much they save, and how they invest their savings. Economists also study how people interact with
one another.

_________________means that society is getting the most it can from its scarce resources.

An _________________is something that induces a person to act, such as the prospect of a punishment
or a reward.

_________________allows each person to specialize in the activities he or she does best, whether it is
farming, sewing, or home building. By trading with others, people can buy a greater variety of goods and
services at lower cost.

_________________means that the benefits of those resources are distributed fairly among society’s
members.

The _________________is what you give up to get that item.

Economists use the term _________________ to describe small incremental adjustments to an existing
plan of action.

“Margin” means “_________________,” so marginal changes are adjustments around the edges of what
you are doing.

A country's standard of living depends on its ability to _________________.

The most important determinant of living standards: _________________, the amount of goods and
services produced per unit of labor. _________________depends on the equipment, skills, and
technology available to workers.

The relationship between productivity and living standards also has profound implications for
_________________.

_________________ – shows how and why different goods have different values, how individuals and
businesses conduct and benefit from efficient production and exchange, and how individuals best
coordinate and cooperate with one another.

_________________ – provides a more complete and detailed understanding than macroeconomics.

If policymakers _________________, they can lower unemployment, but only at the cost of higher
inflation.

If they _________________, they can lower inflation, but at the cost of temporarily higher
unemployment.

There are two broad reasons for a government to intervene in the economy: to promote
_________________and to promote _________________.

In a _________________economy, the decisions of a central planner are replaced by the decisions of

millions of firms and households.

Today, most countries that once had _________________planned economies have abandoned this
system and are trying to develop market economies.

Economists use the term _________________ to refer to a situation in which the market on its own fails
to allocate resources efficiently.

One possible cause of market failure is an _________________. An _________________is the impact of

one person’s actions on the well-being of a bystander.

The _________________is a decision-making tool for managers deciding on the optimum product mix
for the company.

Another possible cause of market failure is _________________. _________________refers to the

ability of a single person (or small group of people) to unduly influence market prices.

_________________, an increase in the overall level of prices in the economy.

PRINCIPLE #____________________________________________________________________- Under

this principle, the first lesson to decision making is: “There is no such thing as a free lunch.” To get one
thing that we like, we usually have to give up another thing that we like. Making decisions requires
trading off one goal against another.

PRINCIPLE #____________________________________________________________________- Trade

allows each person to specialize in the activities he or she does best, whether it is farming, sewing, or
home building. By trading with others, people can buy a greater variety of goods and services at lower
cost. Countries as well as families benefit from the ability to trade with one another.

PRINCIPLE #____________________________________________________________________

Because people face tradeoffs, making decisions requires comparing the costs and benefits of
alternative courses of action. The opportunity cost of an item is what you give up to get that item. When
making any decision, such as whether to attend college, decisionmakers should be aware of the
opportunity costs that accompany each possible action.
PRINCIPLE
#____________________________________________________________________Economists use the
term marginal changes to describe small incremental adjustments to an existing plan of action. Keep in
mind that “margin” means “edge,” so marginal changes are adjustments around the edges of what you
are doing.

PRINCIPLE #____________________________________________________________________An
incentive is something that induces a person to act, such as the prospect of a punishment or a reward.
Because rational people make decisions by comparing costs and benefits, they respond to incentives.
People make decisions by comparing costs and benefits, their behavior may change when the costs or
benefits change. That is, people respond to incentives.

PRINCIPLE #____________________________________________________________________- A
country's standard of living depends on its ability to produce goods & services. The most important
determinant of living standards: productivity, the amount of goods and services produced per unit of
labor. Productivity depends on the equipment, skills, and technology available to workers. The
relationship between productivity and living standards also has profound implications for public policy.

PRINCIPLE #____________________________________________________________________-Society
faces a short-run tradeoff between unemployment and inflation. If policymakers expand aggregate
demand, they can lower unemployment, but only at the cost of higher inflation. If they contract
aggregate demand, they can lower inflation, but at the cost of temporarily higher unemployment.

PRINCIPLE #____________________________________________________________________- Today,

most countries that once had centrally planned economies have abandoned this system and are trying
to develop market economies. In a market economy, the decisions of a central planner are replaced by
the decisions of millions of firms and households. Firms decide whom to hire and what to make.
Households decide which firms to work for and what to buy with their incomes. These firms and
households interact in the marketplace, where prices and self-interest guide their decisions

PRINCIPLE #____________________________________________________________________ -
Although markets are usually a good way to organize economic activity, this rule has some important
exceptions. There are two broad reasons for a government to intervene in the economy: to promote
efficiency and to promote equity.

PRINCIPLE #____________________________________________________________________- When

too much money is floating in the economy, there will be higher demand for goods and services. This
will cause firms to increase their price in the long run causing inflation. Disadvantages: *If governments
print money to pay off national debt, inflation would rise.

Economists use _________________ as the primary tool for explaining or making predictions about
economic issues and problems.

OUR FIRST MODEL: ___________________________________________________- This diagram is a

schematic representation of the organization of the economy. Decisions are made by households and
firms. Households and firms interact in the markets for goods and services (where households are
buyers and firms are sellers) and in the markets for the factors of production (where firms are buyers
and households are sellers). The outer set of arrows shows the flow of dollars, and the inner set of
arrows shows the corresponding flow of goods and services.

The _________________ is a curve on a graph that illustrates the possible quantities that can be
produced of two products if both depend upon the same finite resource for their manufacture. it can
demonstrate that a nation's economy has reached the highest level of efficiency possible.

OUR SECOND MODEL: __________________________________ - The ….. is a curve on a graph that

illustrates the possible quantities that can be produced of two products if both depend upon the same
finite resource for their manufacture. The PPF is also referred to as the production possibility curve. PPF
also plays a crucial role in economics. For example, it can demonstrate that a nation's economy has
reached the highest level of efficiency possible.

_________________ – is the study of how households and firms make decisions and how they interact
in specific markets.

_________________ – can be applied in a positive or normative sense.

_________________ – means small, the term micro was originated from Greek word.

_________________ of Micro-economics – is to explain the principles, problems and policies related to

the optimum allocation of resources.

Scope of Microeconomics:

1. Theory of _________________.
2. Theory of _________________.
3. Theory of _________________.

__________________________________ – the study of how the allocation of resources and goods

affects social welfare.

__________________________________ – also called theory of distribution. It deals with prices paid

for factor services (land, labor, capital and entrepreneur).

__________________________________ – is an economic theory that states that the price for a specific
good or service is determined by the relationship between its supply and demand at any given point.

_________________ and _________________ – determine the optimal price of goods and services, this
means pricing reacts to the market.

_________________ Economics – seeks the economic state that will create the highest overall level of
social satisfaction.

_________________ economics – describes and explains various economic phenomena. Based on facts
and cannot be approved or disapproved. Focuses on the description, quantification and explanation of
economic developments, expectations, and associated phenomena. Relies on objective data analysis,
relevant facts, and associated figures.

1. Connects cause and effects.

2. Based on tested facts.
3. Tells you what is/ what was.
4. Descriptive.
5. Objective.
_________________ economics – focuses on the value of economic fairness or what the economy
should be. Based on value judgements. Focuses on value-based judgements aimed at improving
economic development, investment projects, and the distribution of wealth.

1. Makes Recommendations.
2. Not based on tested facts.
3. Tells you what/should be/have been.
4. Prescriptive.
5. Subjective.

Two Standard branches of modern economics:

1. _________________ economics.
2. _________________ economics.

_________________ – consider taxes, regulations, and government legislation. It does not try to explain
which actions should take place in a market but rather the effects of changes in certain conditions.

Key terms to know:

1. Trade
2. Labor Economics
3. Public Finance
4. Welfare Economics
5. Market Economics

_________________ – analyze entire industries and economies rather than individuals or specific
companies. Determine the optimal rate of inflation and factors that may stimulate economic growth.

Key terms to know:

1. National Income
2. Savings
3. Overall Price Level
_________________ – buyer

_________________ -supplier
Demand curve

Law of Demand and Supply

The higher the _________________, the lower the _________________ demanded.

5 Demand shifters (factors)

1. __________________________________.
2. __________________________________.
3. __________________________________.
4. __________________________________.
5. __________________________________.

__________________________________ = Satisfaction

The PPF is also referred to as the __________________________________.

The _________________is the area on a graph representing production levels that cannot be obtained
given the available resources; the curve represents optimal levels.

Law of Demand:

1. _________________ – increase and decrease is significant.

2. _________________.

Income of Buyer

1. _________________ Goods- income increases, quantity demanded increases. Directly.

2. _________________ Goods – income increases, quantity demanded decreased.

_________________ – willingness of quantities to be sold.

The higher the _________________ to be sold, the higher the quantity to be _________________.

S(sub1) – upward sloping.

Supply Shifters (factors):

1. _________________ – labor, capital, etc.

2. _________________.
3. _________________.
4. _________________.
5. _________________.
_________________ – price that the consumer pays vs. the price that they are willing to pay.

_________________ – sensitivity of one variable due to a change in other variables.

_________________ if its more than 1.

_________________ if its less than 1.

_________________ if its equal to 1.

4 types of Elasticity:

1. __________________________________ .
2. __________________________________ .
3. __________________________________.
4. __________________________________.

Price Elasticity of Demand (PED) – responsiveness of _________________ to a change in

_________________.

Arc Computation of PED Arc of PED PED point formula

Cross Elasticity (XED)

Income Elasticity of Demand (YED) – responsiveness of quantity demand based on the change of real
_________________ of the _________________.

Price Elasticity of Supply (PES) – responsiveness to the _________________ of a good or service after a
change in its _________________.

“High prices, more supplies”.