Chapter 1 Notes - Chapter Recap Questions

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Give three examples of important trade-offs that you face in your life.

Some important tradeoffs that I will face in life will be if I wont to go to college or not. If I wont to study more or would I prefer to watch TV. Should I go to the gym or take a nap.

What is the opportunity cost of seeing a movie?

I could see a movie or I could study for my final

Water is necessary for life. Is the marginal benefit of a glass of water large or small?

Small because its cost is low.

Why should policymakers think about incentives?

Because they can make people want to work harder or buy a certain good.

Why isn't trade among countries like a game with some winners and some losers?

Because trade helps both parties. It lets the countries sell the goods they make the best to other countries and get the goods that they cannot make well from them.

What does the "invisible hand" of the marketplace do?

The invisible hand is the government and it helps to protect the economy by setting laws and restrictions that keep everyone safe.

Explain the two main causes of market failure and give an example of each.

Market failure can be caused by Externality and Market Power. Externality is when one person actions can effect the whole economy. Market Power is when a small group of people have a strong impact on the economy.

Why is productivity important?

With higher productivity the standard of living will be higher. Which means better education and increase in life expectancy.

What is inflation and what causes it?

Inflation is when prices increase when too much of a currency is put into the economy which causes it to be worth less.

How are inflation and unemployment related in the short run?

If inflation is increased at a steady rate it will help boost the economy and in turn create new jobs and lower unemployment.

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