Microeconomics 1.1

Principle 1 - People face Trade-Offs

People exchange something of value, as part of a compromise.

Efficiency

Society’s getting the best benefits from its scare resources.

Equality

Those benefits are distributed uniformly among society’s members.

Principle 2 - Opportunity Cost

The Cost of Something Is What You Give Up to Get It

Principle 3 - Rational People Think at the Margin

Rational people systemically and purposefully do the best they can when they want to achieve their goals

Marginal Change

An incremental adjustment to an existing plan of action.

Rational people make decisions by?

Comparing marginal benefits & marginal costs.

Principle 4 - People Need Incentives

People respond to incentives if they make decisions by comparing costs and benefits.

Incentive

Something that induces a person to act, such as the prospect of a punishment or a reward.