Chapter+1+-+Ten+Principles+of+Economics

=Intro to Economics = // - Calvin Coolidge**
 * **Scarcity**: the insufficiency of society's resources. The society can't provide all the services and goods that people desire.
 * **Economics**: deals with how the society controls and manages these scarce resources
 * "Economy is the method by which we prepare today to afford the improvement of tomorrow"

//

 //How People Make Decisions//  Principle 1: People Face Trade-offs  This principle is fairly simple. You make trade offs every day. If you want to get one thing that you like, you often have to give up something. Decisions require sacrifices of some sort. Let's look at an example from the movie below. Picture: http://www.hsu.edu/uploadedImages/Econed/2007%20Economics%20Fair.jpg

media type="youtube" key="wxYRf0_yVSw" width="425" height="350"

 The society in general also faces trade offs. These trade offs are between efficiency and equity.  If these definitions seem a little fuzzy to you, let's make them even simpler by relating them to a chocolate bar. Efficiency cares about the size of this chocolate bar and equity cares about how this chocolate bar is distributed.
 * **Efficiency:** when the society receives the maximum benefit from its scarce resources. In otherwords, it's the quantity that matters.
 *  <span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="color: rgb(6, 4, 83);">**Equity:** is about being fair and equal. the benefit that we get from these scarce resources are spread among the people equally and fairly so that not one person ends up with a whole bunch while others have only a little.<span style="font-family: 'Courier New',Courier,monospace;">

So let's say the king of the chocolate land decides to reward every inhabitants equally by giving away 5 chocolate pieces each. His act promotes equity because everyone is being treated the same way. However, his act also reduces efficiency. Let's say Bob makes more chocolates than Sam. His reward for working hard is being neglected because despite the huge number of chocolates Bob makes, he gets paid with the same number of chocolates as Sam who makes way less than Bob. This discourages Bob and other workers to work hard. This results in fewer chocolates being produced in the chocolate land. Picture: http://btchocolates.com/store/image/11yjm/Chocolate_Selections_Chocolate_Bar_-_Dark_Milk_or_White.jpg

<span style="color: rgb(5, 2, 0); font-family: 'Comic Sans MS',cursive;"><span style="color: rgb(244, 118, 47); font-family: Georgia,serif;"> Principle 2: The Cost of Something is What You Give Up to Get it Often times, when you're making decisions, you compare the benefits and the costs of that action. For example, when you're attending KIS 5 days a week, your cost is your time. Instead of going to school during that time, you could've travelled to France or go to the beach. Time is often the biggest cost when you make decisions.
 * <span style="color: rgb(3, 7, 83);">**Opportunity cost:** whatever you give up to get something that you want.

Picture: http://www.strom.clemson.edu/becker/prtm320/opport.gif

So to make guns and butter, you have to give up one thing to make more of another. For example, if you want to make more butter, than you have to make less of guns so you're giving up on the number of guns you could've made.

<span style="font-size: 110%; color: rgb(255, 92, 0); font-family: Georgia,serif;"> <span style="color: rgb(239, 82, 6); font-family: Georgia,serif;"> Principle 3: Rational People Think at the Margin So at first, you're probably asking yourself, "who are the rational people?"
 * <span style="color: rgb(33, 3, 140);">**Rational people:** people who work really hard to accomplish their goals
 * <span style="color: rgb(33, 3, 140);">**Marginal changes:** small changes that we make to an existing plan. in other words, you are making an "amendment"

<span style="color: rgb(243, 91, 27); font-family: Georgia,serif;"><span style="color: rgb(170, 170, 170);"> Principle 4: People Respond to Incentives <span style="color: rgb(24, 5, 133);"> <span style="font-family: 'Comic Sans MS',cursive;">Rational People react to incentives. Incentives are <span style="color: rgb(248, 104, 225);">HUGE! It plays a vital role in the economy. It also explains how markets function. Let's look at an example of how people respond to incentives. Picture: http://www.cartoonstock.com/lowres/msh0060l.jpg
 * **<span style="color: rgb(34, 4, 139);"> <span style="color: rgb(24, 5, 133);">Incentive: **<span style="color: rgb(24, 5, 133);"> something that stimulates others to take action

<span style="font-family: 'Comic Sans MS',cursive;">In this picture, gas prices have increased; therefore, Ed responds to such incentive and decides to go to work on a scooter. He has made his decision based on the incentive. Now let's look at a perspective of a seller. Gas sellers will decide to hire more workers because since the price is higher, their benefit of selling gas is also higher. In other words, they get more money each time people pay for gas. As you can see, incentives alter the behavior of both buyers and sellers in a market. Stil confused? Don't worry, let's look at a comic for further clarification :)





<span style="display: block; font-family: 'Comic Sans MS',cursive; text-align: left;">As you can see, the bear responds differently as the price of apples change. He is reacting to the incentives. :) <span style="display: block; font-family: 'Comic Sans MS',cursive; text-align: left;"> <span style="display: block; font-family: 'Comic Sans MS',cursive; text-align: left;">As you can see, incentives cause shifts in supply and demand curve. If the cost of inputs needed to make cake decreases, then the producers would supply more hence the supply curve shifts to the right. <span style="display: block; font-family: 'Comic Sans MS',cursive; text-align: left;"> <span style="display: block; font-family: 'Comic Sans MS',cursive; text-align: left;">Picture: http://www.argmax.com/mt_blog/archive/pokemonf2.gif

<span style="display: block; color: rgb(255, 92, 0); font-family: Georgia,serif; text-align: left;">

Principle 5: Trade Can Make Everyone Better Off <span style="font-family: 'Comic Sans MS',cursive;">Despite the competitive world that we live in, trade between different countries can make each country better off. It allows them to take advantage of their strengths and benefits without worrying about their weaknesses. In other words, it allows them to specialize in whatever they are best at while enjoying different varities of goods and services, imported from other countries. Trade doesn't only happen in between countries but also in our daily lives.

Let's say that you brought a lot of onion rings for lunch and your friend brought french fries. After a while, you get sick of only eating onion rings and want to eat those french fries that your friend has; so, you make a deal (trade). <span style="font-family: 'Comic Sans MS',cursive;"><span style="color: rgb(250, 10, 240);"> "I'll give you 10 of my onion rings for your 10 french fries" <span style="font-family: 'Comic Sans MS',cursive;"><span style="color: rgb(250, 10, 240);">"okay! sounds good to me!" <span style="font-family: 'Comic Sans MS',cursive;"> Now, you AND your friend are satisfied with your lunch because both of you can enjoy a greater variety. (: <span style="font-family: 'Comic Sans MS',cursive;"> <span style="font-family: 'Comic Sans MS',cursive;">  Picture: http://www.southwestmiddlesex.ca/WebSitePics/BeansShakingHands.gif

<span style="color: rgb(255, 112, 0); font-family: Georgia,serif;">Principle 6: Markets Are Usually a Good Way to Organize Economic Activity
 * <span style="color: rgb(24, 0, 96);"> **Market economy:** an economy that involves the decisions of households and firms as they work together in markets to distribute goods and services


 * Property rights:** when an individual is allowed to have control over the scarce resources.
 * Market Failure:** when a market is unable to distribute their resources effectively and efficiently
 * Externality**: is one of the feasible causes of market failure. it's when one person influences another person's well being. for example, pollution. it can be caused by a single person but impacts a whole group of bystanders.
 * Market power:** when a single person has the power to influence the market prices
 * Productivity:** the amount of goods and services that a worker produces each hour
 * Inflation:** when the overall prices in the economy goes up.
 * Business cycle:** irregular and unpredictable changes in the economy. For example the amount of goods and services that workers produce can change at any time.

<span style="color: rgb(255, 84, 0);"> Principle 7:   <span style="color: rgb(255, 84, 0);">  Governments Can Sometimes Improve Market Outcomes Diagram 3 http://www.climatecartoons.org.uk/invisiblehand.jpg

This picture shows the "invisible hand" by Adam Smith. Having guided by the invisible hand, it can lead the market to have a desirable market outcomes. Although it is "invisible", it plays a vital role in the market economy with its "magic".

Summary <span style="color: rgb(6, 4, 4);"> <span class="Apple-style-span" style="color: rgb(5, 11, 80);">**Equity:** is about being fair and equal. the benefit that we get from these scarce resources are spread among the people equally and fairly so that not one person ends up with a whole bunch while others have only a little. <span style="color: rgb(6, 4, 4);"><span class="Apple-style-span" style="color: rgb(5, 11, 80);">
 * Scarcity**: the insufficiency of society's resources. The society can't provide all the services and goods that people desire.
 * <span style="color: rgb(6, 4, 4);"> Efficiency: **<span style="color: rgb(6, 4, 4);"> when the society receives the maximum benefit from its scarce resources. In otherwords, it's the quantity that matters.

<span style="color: rgb(255, 6, 0);"> =<span style="color: rgb(6, 4, 4);"><span class="Apple-style-span" style="color: rgb(5, 11, 80);"><span style="color: rgb(255, 6, 0);">Summary  = =<span style="color: rgb(6, 4, 4);"><span class="Apple-style-span" style="color: rgb(5, 11, 80);"> = <span style="color: rgb(6, 4, 4);"><span class="Apple-style-span" style="color: rgb(5, 11, 80);">Principle 1: People face trade-offs <span style="color: rgb(6, 4, 4);"><span class="Apple-style-span" style="color: rgb(5, 11, 80);"> Principle 2: The cost of something is what you give up to get <span style="color: rgb(6, 4, 4);"><span class="Apple-style-span" style="color: rgb(5, 11, 80);"> Principle 3: Rational people think at the margin <span style="color: rgb(6, 4, 4);"><span class="Apple-style-span" style="color: rgb(5, 11, 80);"> Principle 4: People respond to incentives <span style="color: rgb(6, 4, 4);"><span class="Apple-style-span" style="color: rgb(5, 11, 80);">Principle 5: Trade can make everyone better off <span style="color: rgb(6, 4, 4);"><span class="Apple-style-span" style="color: rgb(5, 11, 80);">Principle 6: Markets are usually a good way to organize economic activity <span style="color: rgb(6, 4, 4);"><span class="Apple-style-span" style="color: rgb(5, 11, 80);">Principle 7: Governments can sometimes improve market outcomes

<span style="color: rgb(116, 90, 231);">1. What is one important factor of microeconomics?
Ans: Scarcity Def: the insufficiency of society's resources. The society can't provide all the services and goods that people desire.

<span style="color: rgb(248, 13, 13);">2. Explain the guns and butter graph shown above. What principle does it show?
Ans: So to make guns and butter, you have to give up one thing to make more of another. For example, if you want to make more butter, than you have to make less of guns so you're giving up on the number of guns you could've made. (The cost of something is what you give up to get it)