Economics Chapter 1 and 2 - Economics Chapter 1 Ten...

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Economics Chapter 1 Ten Principles of Economics - Scarcity - the limited nature of society’s resources \ - Economics - the study of how society manages its scarce resources How People Make Decisions I. People Face Trade-offs a. Ex) Reduced pollution=higher costs, smaller profits or greater equity=reduced efficiency b. Efficiency -society getting the most it can from its resources c. Equity -distributing economic prosperity fairly among the members of society II. The Cost of Something is What You Give Up to Get It a. Opportunity Cost - whatever must be given up to obtain some item III. Rational People Think at the Margin a. Rational People - people who systematically and purposefully do the best they can to achieve their objectives b. Marginal Changes - small incremental adjustments to a plan of action i. Marginal benefits and costs, if benefits outweighs cost, it is profitable IV. People Respond to Incentives a. Incentive - something that induces a person to act How People Interact I. Trade Can Make Everyone Better Off a.
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