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Ten Principles of Economics

Ten Principles of Economics. Chapter 1. Terminology. Economy Households Society Scarcity Economics “How society manages scarce resources”. How People Make Decisions. 1. People Face Trade-offs To get something, must give up something Examples Studying Guns v. butter

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Ten Principles of Economics

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  1. Ten Principles of Economics Chapter 1

  2. Terminology • Economy • Households • Society • Scarcity • Economics • “How society manages scarce resources”

  3. How People Make Decisions 1. People Face Trade-offs • To get something, must give up something • Examples • Studying • Guns v. butter • Environment v. standard of living • Efficiency v. Equity • Efficiency • Size of pie • Equity • How pie is divided

  4. How People Make Decisions 2. Cost of Something Is What You Give Up to Get It • Compare benefits and costs • Problems with calculating costs • What to include • Opportunity cost 3. Rational People Think at the Margin • Marginal changes • Plane example 4. People Respond to Incentives • Gas prices • Seat belts

  5. How People Interact 5. Trade Can Make Everyone Better Off • Families • Countries 6. Markets Are Usually a Good Way to Organize Economic Activity • Communism • Market economy • Adam Smith • Government interference

  6. How People Interact 7. Governments Can Sometimes Improve Market Outcomes • Protect assets • Increase efficiency • Market failure • Externality • Market power • Increase equity • Economists v. Government policies

  7. How Economy as a Whole Works 8. Country’s Standard of Living Depends on Ability to Produce Goods and Services • US average income • Impacted by productivity • Policymakers 9. Prices Rise When Government Prints Too Much Money • Inflation • 1920s Germany 10. Society Faces a Short-Run Tradeoff between Inflation and Unemployment • Phillips curve • Business cycle

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