Econ 202 Chapter 1

Econ 202 Chapter 1 - Econ 202 Chapter 1 The Big Ideas Idea...

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Econ 202 Chapter 1 The Big Ideas Idea 1: Incentives Incentives: rewards and penalties that motivate behavior Idea 2: Social interest vs. Self interest Good institutions align self-interest with the social interest When markets work well, people acting in their own self-interest promotes social interest Invisible hand principle Idea 3: Trade-offs All economic activity involves conflicting objectives Opportunity Cost : value of opportunities lost Used to measure the tradeoffs of economic activity People respond to opportunity cost Idea 4: Thinking on the Margin Economic activity rarely involves all or nothing choices Tradeoffs involve decisions about a little bit more or a little bit less Essential to properly analyze tradeoffs Idea 5: Tampering with the laws of supply and demand has consequences Very important economic tool, determines the price of goods and services Government interference rarely works, often worsens Idea 6: Importance of wealth and economic growth
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Econ 202 Chapter 1 - Econ 202 Chapter 1 The Big Ideas Idea...

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