Principle 1.People Face Trade-offs To get one thing that we like usually have to give up another thing that we like. Making decisions requires trading off one goal against another. Another trade-off society faces is between efficiency and equality. Efficiency means that society is getting the maximum benefits from its scarce resources.*Size of Economic pie. Equality means that those benefits are distributed uniformly among society’s members. How the pie is divided into individual slices. Principle 4.People respond to incentives Ex: Taxes are a discouragement. A higher price in the market provides and incentive for sellers to produce more. Many policies changes the costs or benefits that people face and, therefore alter their behavior. Ex: gasoline When policymakers fail to consider how their policies affect incentives, they often end up with unintended consequences. If the policy changes incentives, it will cause people to alter their behavior. Ex: seatbealts
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This note was uploaded on 11/10/2011 for the course ECO 2301 taught by Professor Green during the Fall '11 term at Sam Houston State University.