Ch 1: Ten Principles of EconomicsThursday, September 18, 201412:31 AM-Scarcity: the limited nature of society's resources-Economics: the study of how society manages its scarce resources-How people make decisionsoPrinciple 1: People Face Trade-offs-Efficiency: the property of society getting the most it can from its scarce resources-Equality: the property of distributing economic prosperity uniformly among the members of societyoPrinciple 2: The cost of something is what you give up to get it -Opportunity cost: whatever must be given up to obtain some itemoPrinciple 3: Rational people think at the margin-Rational people: people who systematically and purposefully do the bestthey can to achieve their objectives-Marginal change: a small incremental adjustment to a plan of actionoPrinciple 4: People respond to incentives-Incentive: something that induces a person to actoPrinciple 5: Trade can make everyone better offoPrinciple 6: Markets are usually a good way to organize economic activity-Market economy: an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and servicesoPrinciple 7: Governments can sometimes improve market outcomes-Property rights: the ability of an individual to own and exercise control over scares resources-Market failure: a situation in which a market left on its own fails to allocate resources efficiently -Externality: the impact of one person's actions on the well-being of a bystander-Market power: the ability of a single economic actor (or small group actors) to have a substantial influence on market pricesoPrinciple 8: A country's standard of living depends on its ability to produce goodsand services-Productivity: the quantity of goods and services produced from each unit of labor inputoPrinciple 9: Prices rise when the government prints too much money-Inflation: an increase in the overall level of prices in the economyoPrinciple 10: Society faces a short-run trade-off between inflation and unemployment-Business cycle: fluctuation in economic activity, such as employment and production1-4: How PeopleMake Decisions 5-7: How People Interact 8-10: How the EconomyAs A Whole
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