Question

1-1. Principle 1: People Face Trade-offs The study of Economics starts by acknowledging 1-2. Principle 2: The Cost of Something Is What You Give Up to Get It What is opportunity cost? It is the highest-valued, next best alternative that must be to obtain something or to satisfy a want. 1-3. Principle 3: Rational People Think at the Margin Rational people often make decisions by comparing marginal benefits andL A rational decision maker takes an action if and only if the of the action exceeds the marginal cost. 1-4. Principle 4: People Respond to Incentives Because rational people make decisions by comparing costs and benefits they respond to such as prospect of a punishment or a reward 1-5. Principle S: Trade Can Make Everyone Better Off Despite competition, trade allows each person to specialize in activities he or she can do best and by with others, people can buy a greater variety of goods and services at lower price 1-6. Principle 6:Markets Are Usually a Good Way to Organize Economic Activity dam Smith (1776) stated that households and firms interacting in market places act as if they are guided by an even though participants behave in their own "that leads them to desirable market outcomes -7.Principle 7: Governments Can Often Improve Market Outcomes Well-designied publie policy can enhance economic efficieney There exist many situations in which the invisible hand does not lead markets to allocate resources to maximize the size of the economic pie: This situation is called A person or group not facing a rigorous market competition would control the market to maximize his or her own

Answer 1

1.1 The study of economics starts by acknowledging trade offs.

Explanation:It is the basic essence of economics. Since the resources are scarce and the needs unlimited, we need to put these resources to best possible use.

1.2 Opportunity cost is the highest valued, next best alternative that must be given up to obtain something or to satisfy a want.

Explanation:This arises due to the problem of scarce resources and unlimited needs which makes way for opportunity cost.

1.3 Rational people make decisions by comparing marginal benefits with marginal cost. A rational decision maker takes an action as long as the marginal benefit exceed marginal cost.

Explanation:A rational consumer won't go in case he is incurring losses.

1.4 Because rational people make decisions by comparing costs and benefits, they respond to incentive such as the prospect of punishment or reward.

Explanation: This means that the individual would like to consider the incentives he gets by choosing a particular option or strategy.

1.5 Despite competition trade allows each person to specialise in activities he or she can do best and then by  trading with others to get a variety of goods and services.

Explanation: This is the way the international trade works , by comparing comparative advantage and producing and trading accordingly.

1.6 Adam Smith stated that firms and households interact in market place as if guided by invisible hand that leads to desirable outcomes even when the participants behave in their own selfish ways

Explanation: He believed that government intervention is not necessary for it and market can reach their equilibrium with the invisible hand.

1.7 There exist many situations in which invisible hand does not lead markets to allocate resources to maximize the size of economic pie. This is called market failure

Explanation: In a situation like this, it becomes necessary for the government to intervene to allocate resources to maximize the size of pie ie this is the situation when Adam Smith's invisible hand fails .

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