. . . The word economy comes from a Greek word for “one who manages a household.”
Scarcity. . . means that society has limited resources and therefore cannot produce all the goods and services people wish to have.
Economics is the study of how society manages its scarce resources.
Efficiency v. Equity
Efficiency means society gets the most that it can from its scarce resources.
Equity means the benefits of those resources are distributed fairly among the members of society.
The opportunity cost of an item is what you give up to obtain that item.
Marginal changes are small, incremental adjustments to an existing plan of action
People make decisions by comparing costs and benefits at the margin
A market economy is an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.
Households decide what to buy and who to work for.
Firms decide who to hire and what to produce.
Property rights are the ability of an individual to own and exercise control over a scarce resource
Market failure occurs when the market fails to allocate resources efficiently. an externality, which is the impact of one person or firm’s actions on the well-being of a bystander. market power, which is the ability of a single person or firm to unduly influence market prices
Standard of living may be measured in different ways:
By comparing personal incomes.
By comparing the total market value of a nation’s production.
Productivity is thInflation is an increase in the overall level of prices in the economy.
One cause of inflation is the growth in the quantity of money.
When the government creates large quantities of money, the value of the money falls.e amount of goods and services produced from each hour of a worker’s time.
Summary: The principles of personal decision making are:
People