ECN 222 1st Edition Lecture 4 Outline of Last Lecture - Review Principles #1-4- Moral Hazard- The Principles of how people interact (5-7)Outline of Current Lecture - Review Principles 5,6, and 7- Principles 8, 9, and 10Current Lecture- Principles #5-7o Principle # 5 : Trade can make everyone better ofo Principle #6 : Markets are usually a good way to organize economic activityo Principle #7 : Government can sometimes improve market outcome Market power, a single buyer or seller has substantial influence on marketprice (e.g. Monopoly) In such cases, public policy may promote efficiency, government may wishto alter market outcome to promote equality If the markets distribution of economic well-being is not “desirable”, tax or welfare policies can change how the economic “pie” is divided Equality vs. Efficiency- **How the economy as a whole works: Principles 8-1o *Principle #8: A countries standard of living depends on its ability to produce goods and services Huge variation in living standards across countries and over time:- Rich countries have ten times more income then the poor countries The most important determinant of living standards:- ProductivityThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- The amount of goods and services produced per unit of labor Productivity depend on the equipment, skills, and technology available to workerso *Principle # 9 Prices rise when the government prints too much money Inflation: increases in the general level of prices Inflation is almost always caused by excessive growth in the quantity of money, which causes the value of money to fall The faster the government creates money, the greater the inflation rateo *Principle #10: Society faces a short-run tradeof between inflation and unemployment Business Cycle: fluctuations in economic activity, such as employment andproduction In the short-run (1-2 years), many economic policies push inflation and unemployment in opposite