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CHAPTER 1-10 PRINCIPLES OF ECONOMICS

CHAPTER 1-10 PRINCIPLES OF ECONOMICS - 2 THE COST OF...

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10 PRINCIPLES OF ECONOMICS I. ECONOMY – derived: oikonomos (Greek) “one who manages a household” a. Scarcity-Limited nature of society’s resources b. How society manages its scarce resources c. Economists study : people’s decisions/interactions , analyze forces/trends in economy HOW INDIVIUALS MAKE DECISIONS: 1. TRADE OFFS a. “guns and butter” – nation spends more on defense and so less on consumer goods b. Pollution vs. income – pollution laws in place means more cost for production, hence less employee income c. Efficiency vs. Equality: inversely proportional! Efficiency: Getting maximum benefits from scarce resources (the size of a pie) Equality: uniform distribution of prosperity (how equally the pie is cut) (Welfare system, unemployment – achieving equality bringing down efficiency-income from rich to poor, less work, fewer products)
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Unformatted text preview: 2. THE COST OF SOMETHING IS WHAT YOU GIVE UP TO GET IT a. Opportunity cost: what you give up to obtain something a.i. Giving up job for college time. 3. RATIONAL PEOPLE THINK AT THE MARGIN a. Rational people: people who systematically/purposefully do the best they can to achieve their objectives b. Marginal changes: small incremental adjustments to plan of action c. Marginal benefits/costs 4. PEOPLE RESPOND TO INCENTIVES a. Incentives: HOW PEOPLE INTERACT: 5. TRADE CAN MAKE EVERYONE BETTER OFF 6. MARETS-GOOD WAY TO ORGANIZE ECONOMIC ACTIVITY 7. GOVERNMENTS CAN SOMETIMES IMPROVE MARKET OUTCOMES HOW THE MARKET WORKS AS A WHOLE 8. COUNTRY DEPENDS ON GOODS/SERVICES PRODUCED 9. GOVERNMENT PRINTS TOO MUCH $: INFLATION 10. SHORT-RUN TRADE OFF B/W INFLATION/UNEMPLOYMENT...
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