Ten Principles of Economics

#1) People face trade offs

Trading one goal for another in order to get something else you want

ex. Going out means less time spent studying

#2) Cost of something is what you give up to get it

Opportunity cost

Making decisions by comparing costs with the benefits

ex. Is the tuition and time worth the education you recieve?

#3) Rational people think at the margin

Given the available opportunity, rational people make decisions by evaluating the costs and benefits of marginal changes, or minor adjustments to a plan

#4) People respond to incentives

Incentives induce a person to act

ex. Increase the price of doughnuts, consumers buy fewer, sellers produce too much

#5) Trade can make everyone better off

Everyone has something to sell, and we can’t all specialize in everything, so somebody has to be good at a specific thing and sell it. this applies not only to people, but countries too.

#6) Markets are usually a good way to organize economic activity

Market economy allocates resources through decentralized decisions of many households and firms as they interact in markets for goods and services

#7) Gov,t. can sometimes improve market outcomes

By implementing policy, the gov,t. can prevent market failure, which is when the market doesn’t produce an efficient allocation of resources on its own.

#8) A standard of living depends on the ability to produce goods and services

Productivity increases by country, and is the amount of goods and services produced by each unit of labor

ex. To boost productivity, policy makers need to provide the tools and services

#9) Prices rise when the gov,t. prints too much money

Inflation - quantity rises, value lowers

#10) Society faces a short-run trade off between inflation and unemployment

Short-run is described as when the amount of money in the economy stimulates the overall level of spending and thus the demand for goods and services. Higher demand will eventually cause a raise in prices and encourage more hiring, which lowers unemployment