3311 - Chapter 1 Ten Principles of Economics...

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Chapter Ten Principles of Economics 1
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Ten Principles of Economics Economy – “oikonomos” (Greek) “One who manages a household”  Household - many decisions Allocate scarce resources Ability, effort, and desire Society - many decisions Allocate resources Allocate output Resources are scarce 2
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Ten Principles of Economics Scarcity - limited nature of society’s  resources Economics Study of how society manages its scarce  resources Economists study: How people make decisions  How people interact with one another Analyze forces and trends that affect the  economy as a whole 3
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How People Make Decisions Principle 1: People face trade-offs Making decisions Trade off one goal against another Student – time Parents – income Society National defense vs. consumer goods Clean environment vs. high level of income Efficiency vs. equality  4
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How People Make Decisions Principle 1: People face trade-offs Efficiency Society - maximum benefits from its  scarce resources Size of the economic pie Equality Benefits - uniformly distributed among  society’s members How the pie is divided into individual  slices 5
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How People Make Decisions Principle 2: The cost of something is what  you give up to get it People face trade-offs Make decisions Compare cost with benefits of alternatives Opportunity cost Whatever most be given up to obtain one  item 6
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How People Make Decisions Principle 3: Rational people think at the  margin Rational people they can to achieve their objectives
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3311 - Chapter 1 Ten Principles of Economics...

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