Economics, 3rd Edition

the economy

 all the production and exchange activities that take place every day

economic activity

 how much buying and selling goes on in the economy over a period of time

equity

 – the property of distributing economic prosperity fairly among the members of society

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4  PART 1  INTRODUCTION TO ECONOMICS 

them distorts work incentives. Nevertheless, acknowledging life’s trade-offs is important because people 

are likely to make good decisions only if they understand the options that they have available.

opportunity cost

 – whatever must be given up to obtain some item; the value of the benefits foregone (sacrificed)

SELF TEST 

Does the adage ‘there is no such thing as a free lunch’ simply refer to the fact that someone has 

to have paid for the lunch to be provided and served? Or does the recipient of the ‘free lunch’ also incur a cost?

A typical supermarket shelf offering a 

variety of cereals. What are the trade-offs 

an individual faces in this situation?