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Unformatted text preview: Chapter 1 Ten Principles of Economics I. Principle 1 People Face Trade-offs: There is no such thing as a free lunch. Consumers and producers cannot have everything; they have to give up one thing to obtain another ex. More money spent on national defense but less spent on raising the standard of living Efficiency, equity II. Principle 2 The Cost of Something Is What You Give Up to Get It Opportunity cost III. Principle 3 Rational People Think at the Margin Marginal benefit (MB) vs. marginal cost (MC) Diamond/water complex Good decisions are made when rational people compare MB to MC Rational people, marginal changes IV. Principle 4 People Respond to Incentives Decisions are influenced by incentives Incentive V. Principle 5 Trade Can Make Everyone Better Off Trade allows everyone to specialize in what theyre good and allows them to buy good products...
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This note was uploaded on 04/10/2008 for the course ECON 100 taught by Professor Tenerelli during the Fall '06 term at Ill. Wesleyan.
- Fall '06