Eco102 Lt H 1 Review (Chapter 1: Ten Principles Of Economics)

The correct answer is scarcity. Scarcity refers to the limited availability of resources in society. When resources are scarce, there is not enough to satisfy everyone's wants and needs. This can lead to competition and the need to make choices about how resources are allocated. Scarcity is a fundamental economic concept that affects various aspects of society, such as production, consumption, and distribution.

Trade allows each person to specialize in the activities they do best, which leads to increased efficiency and productivity. When individuals specialize, they can focus on producing goods and services where they have a comparative advantage, which means they can produce those goods and services at a lower opportunity cost. As a result, trade allows for the allocation of resources to be more efficient and leads to higher overall economic output. This increased productivity benefits everyone involved in the trade, making everyone better off. Therefore, the statement "Trade can make everyone better off" is true.

Making decisions often involves considering different goals or priorities and weighing them against each other. This means that in order to make a decision, individuals need to prioritize one goal over another or make compromises. Therefore, the statement that making decisions requires trading off one goal against another is true.

Economics is the study of how society manages its scarce resources. This definition encompasses the fundamental concept of economics, which is the allocation of limited resources to fulfill unlimited wants and needs. By studying economics, we gain insights into how societies make decisions regarding production, distribution, and consumption of goods and services. Understanding how societies manage their scarce resources is crucial for analyzing and improving economic systems and addressing issues such as poverty, inequality, and sustainability.

The statement is true because rational people consider the additional or incremental benefits and costs when making decisions. They weigh the potential benefits of taking an action against the potential costs involved. If the marginal benefit outweighs the marginal cost, a rational person will choose to take the action. This approach helps individuals make efficient decisions by focusing on the incremental impact of their choices rather than just the overall outcome.

The opportunity cost refers to the value of the next best alternative that is forgone when making a decision. In this case, the college athletes who drop out of school to play professional sports have the biggest opportunity cost. By choosing to pursue professional sports instead of completing their education, they are giving up the potential benefits and opportunities that come with having a college degree. This includes higher earning potential, job security, and a broader range of career options. The potential millions they can earn in professional sports may seem lucrative, but the long-term consequences of not having a college degree can outweigh the immediate gains.

Incentives play a crucial role in influencing people's behavior and decision-making. When analyzing any policy, it is important to consider the direct effects of the policy, as well as the indirect effects that may arise through the incentives it creates. People are more likely to respond positively to policies that provide them with incentives or rewards, while they may be less motivated to engage in certain behaviors if there are no incentives or if the incentives are negative. Therefore, understanding the role of incentives is essential in policy analysis.

Policymakers have the ability to influence the overall demand for goods and services in the economy. By implementing certain policies, they can either stimulate or dampen aggregate demand. When policymakers aim to stimulate demand, it can lead to higher levels of inflation but lower levels of unemployment. Conversely, when policymakers aim to reduce inflation, it can result in higher levels of unemployment. Therefore, there is a short-run trade-off between inflation and unemployment that policymakers must consider when making decisions about economic policies.

This statement is false because rational people do consider marginal benefits and marginal costs when making decisions. Rational individuals weigh the additional benefits they would receive from taking a certain action against the additional costs they would incur. By comparing the marginal benefits and costs, they can make informed decisions that maximize their overall well-being.

When the government tries to cut the economic pie into more equal slices, it does not necessarily result in the pie getting bigger. In fact, redistributive policies can sometimes have the opposite effect and lead to a smaller overall pie. This is because when the government imposes higher taxes on wealthier individuals or businesses to fund social programs, it can discourage investment and economic growth. Therefore, the statement is false.

When the government implements policies to achieve greater equality, it often involves redistributing resources and wealth from those who have more to those who have less. This can result in a decrease in efficiency because it may discourage individuals from working hard or investing in their businesses if they know that their earnings will be heavily taxed or redistributed. Therefore, it is true that when the government tries to achieve greater equality, their policies can reduce efficiency.

the growth rate of a nation's productivity determines the growth rate of its average income.

The statement is false because efficiency refers to how resources are allocated or used to maximize productivity and minimize waste, while equality refers to the fair distribution of resources and opportunities among individuals. The statement incorrectly suggests that efficiency and equality are related to the division and size of the economic pie, which is not accurate.

Almost all variations in living standards is attributable to differences in countries' productivity.

The statement suggests that every individual in a society can achieve their highest standard of living, which is not true. Various factors such as economic disparities, social inequalities, and limited resources can prevent individuals from attaining their desired standard of living. Additionally, personal circumstances, opportunities, and choices also play a significant role in determining one's standard of living. Therefore, it is not realistic to assume that everyone can reach their highest aspirations in terms of living standards.

The correct answer is Oikonomos. The word "economy" comes from the Greek word "Oikonomia" which means "one who manages a household."

Resources are allocated through the combined actions of millions of households and firms in most societies. This means that individuals and businesses make decisions based on their own self-interest, leading to the distribution and allocation of resources. This decentralized approach allows for a market economy where supply and demand determine resource allocation. It is a more democratic and inclusive method compared to an all-powerful dictator or government-controlled allocation.

The statement is true because an economy is indeed a system where individuals interact with each other through various economic activities. It includes the production, distribution, and consumption of goods and services. These interactions can take place in different forms, such as buying and selling, trading, or providing services. Ultimately, an economy is a reflection of the collective actions and behaviors of the people within it.

It is not omnipotent.

The invisible hand can only work if the government enforces the rules and maintains the institutions that are key to a market economy.

Prices serve as the instruments with which the invisible hand directs economic activity. In a market economy, prices play a crucial role in coordinating the actions of individuals, households, and firms. They provide signals and incentives for producers to allocate resources efficiently and for consumers to make decisions based on their preferences and budget constraints. Prices also facilitate the exchange of goods and services by serving as a common unit of measurement and a medium of exchange. Overall, the functioning of markets and the role of prices are essential in organizing economic activity.

The given statement is false. The theory behind central planning is that the government, rather than markets, organizes economic activity. In a centrally planned economy, the government makes decisions regarding production, distribution, and resource allocation. This approach is based on the belief that government intervention can lead to more equitable outcomes and address market failures. However, history has shown that centrally planned economies often struggle with inefficiency, lack of innovation, and limited individual freedom. In contrast, markets allow for decentralized decision-making, competition, and price signals to efficiently allocate resources and promote economic well-being.

Market prices reflect both the value of a good to a society and its cost to society of making the good.