Economics Introduction Essay

6242 WordsJul 26, 201425 Pages
REVIEWER for ECONOMICS Chapter 1 TEN PRINCIPLES of Economics Economy- one who manages a household. Scarcity-the limited nature of society’s resources economics-the study of how society manages its scarce resources PRINCIPLE #1: PEOPLE FACE TRADEOFFS ” To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another.” Efficiency-the property of society getting the most it can from its scarce resources. equity-the property of distributing economic prosperity fairly among the members of society. PRINCIPLE #2: THE COST OF SOMETHING IS WHAT YOU GIVE UP TO GET IT Because people face tradeoffs, making decisions requires comparing the costs and benefits of alternative courses of action. opportunity cost-whatever must be given up to obtain some item. PRINCIPLE #3: RATIONAL PEOPLE THINK AT THE MARGIN Economists use the marginal changes to describe small incremental adjstments to a plan of action. Keep in mind that margin means edge, so marginal changes are adjustments around the edge of what you are doing. A rational decisionmaker takes an action if and only if the marginal benefit of the action exceeds the marginal cost. marginal changes-small incremental adjustments to a plan of action. PRINCIPLE #4: PEOPLE RESPOND TO INCENTIVES Public policymakers should never forget about incentives, for many policies change the costs or benefits that people face and, therefore, alter behavior. A tax on gasoline, for instance, encourages people to drive smaller, more fuel-efficient cars. It also encourages people to take public transportation rather than drive and to live closer to where they work. If the tax were large enough, people would start driving electric cars. PRINCIPLE #5: TRADE CAN MAKE EVERYONE BETTER OFF In fact, the opposite is true: Trade between two countries can make each country better

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