Book Notes - Book Notes Chapter 1: Economy comes from the...

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Book Notes Chapter 1: Economy comes from the Greek word for “one who manages a household” Scarcity means that society has limited resources and therefore cannot produce all the goods and services people wish to have. Economics is the study of how society manages its scarce resources. Efficiency means that society is getting the most it can from its scarce resources Equity means that the benefits of those resources are distributed fairly among society’s members Opportunity cost of an item is what you give up to get that item Marginal changes describe small incremental adjustments to an existing plan of action Market economy- decisions of a central planner are replaced by the decision of millions of firms and households Market failure is a situation in which the market on its own fails to produce an efficient allocation of resources Productivity is the amount of goods and services produced from each hour of worker’s time Inflation is an increase in the overall level of prices in the economy Phillips curve- the curve that illustrates this short-run tradeoff between inflation and unemployment Ten Principles of Economics 1. People Face Tradeoffs- to get one thing that we like, we usually have to give up another thing that we like. 2. The Cost of something is what you give up to get it 3. Rational people think at the margin 4. People respond to incentives 5. Trade can make everyone better off 6. Markets are usually a good way to organize economic activity Households and firms interacting in markets act as if they are guided by an “invisible hand” 7. Governments can sometimes improve market outcomes 8. A country’s standard of living depends on its ability to produce
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This note was uploaded on 03/19/2008 for the course ECON 201 taught by Professor C.liedholm during the Summer '07 term at Michigan State University.

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Book Notes - Book Notes Chapter 1: Economy comes from the...

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