Econ Lecture 1 - The Ten Principles of Economics How People...

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The Ten Principles of Economics How People Make Decisions Principle #1: People Face Tradeoffs a. All decisions involve tradeoffs. Efficiency vs. Equality. a. Efficiency: When society gets the most from its scarce resources b. Equality: When prosperity is distributed uniformly among society's members. c. Tradeoff: to achieve greater equality, could redistribute income from wealthy to poor. But this reduces incentives to work and produce, shrinks the size of the economic "pie". Principle #2: The cost of something is what you give up to get it a. Making decisions requires comparing the costs and benefits of alternative choices b. The Opportunity Cost of any item is whatever must be given up to obtain it. c. It is the relevant cost for decision making. d. TANSTAAFL Principle #3: Rational people think at the margin Rational people. .. a. systematically and purposefully do the best they can to achieve their objectives.
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