CHAPTER+1+-+10+PRINCIPLES+OF+ECONOMICS

=**What is ECONOMICS?** = media type="youtube" key="Uax53VTdkOg&hl=ko&fs=1" height="344" width="425"



 * __*scarcity__: **limited stuff
 * __*economics__: ** how society deals with __scarcity__

=10 PRINCIPLES OF ECONOMICS=

How People Make Decisions[[image:22141369.jpg align="left"]]
- in order to gain something, one must give up something (trade-off) - types of trade offs: higher income & clean environment, __efficiency__ & __equity__ - people tend to make the best decision they can in their situation, thus "giving-up" isn't always involved
 * PRINCIPLE 1: PEOPLE FACE TRADE - OFFS **
 * efficiency: ** getting the most benefits from __scarce__ resources
 * equity: ** distributing economic benefits fairly among society

- since people face trade-offs, comparison between costs and benefits are looked over constantly - it's smart to choose the better deal when numerous options are given
 * PRINCIPLE 2: THE COST OF SOMETHING IS WHAT YOU GIVE UP TO GET IT **
 * __*opportunity cost__: ** whatever one must give-up to gain something else

PRINCIPLE 3: RATIONAL PEOPLE THINK AT THE MARGIN ** - people always tend to choose the best option for them (which sounds very logical) - if what they think doesn't fit along with the reality, they take actions (complaints, petitions...) EX) PRINCIPLE 4: PEOPLE RESPOND TO INCENTIVES ** - people may struggle with making the right decisions, but because people are rational, it leads up to the act of comparison - depending on cost, quality, quantity, or any other aspects, people learn to make the best (most beneficial) decision
 * 
 * rational people: ** people who change their behaviours to meet their highest satisfaction
 * __*marginal changes__: ** "adjusting" to certain actions
 * __*marginal cost__: **additional cost
 * __*marginal benefit__: ** willingness to pay (how much something worth to individuals)
 * 
 * incentive: ** things that make one's actions (behaviours) change (can be positive or negative)

How People Interact
<span style="color: rgb(33, 54, 222)"> **<span style="color: rgb(33, 54, 222)">PRINCIPLE 5: TRADE CAN MAKE EVERYONE BETTER OFF ** - trade between 2 countries can make each country better off since they both fulfill their "needs" - countries can provide each other on what they lack (which is the //purpose// of trade) <span style="color: rgb(33, 54, 222)"> - this system, according to Adam Smith, function thanks the the "invisible hands" - "invisible hands" are like buffers (in science); it neutralizes the benefits between the households (buyers) and firms (sellers) - if prices are too high, not many people would by it, but if prices decrease, more buyers seek for the good - in the end, it reaches the "equilibrium point" which will be discussed more in the next chapters to come
 * PRINCIPLE 6: MARKETS ARE USUALLY A GOOD WAY TO ORGANIZE ECONOMIC ACTIVITY**
 * <span style="color: rgb(4, 143, 33)">__*market economy__: ** an economy where firms and households run on their own

<span style="color: rgb(33, 54, 222)">**PRINCIPLE 7: GOVERNMENTS CAN SOMETIMES IMPROVE MARKET OUTCOMES** - government provide these rights and "promote efficiency and equity: EX)
 * <span style="color: rgb(4, 143, 33)">property rights: ** one's ability to own and control over scarce resources
 * <span style="color: rgb(4, 143, 33)">market failure: ** a situation where one's out of business
 * <span style="color: rgb(4, 143, 33)">__*externality__: ** influence of one's actions on a bystander (can be positive or negative - ex. pollution = negative)
 * <span style="color: rgb(4, 143, 33)">market power: ** ability of a person(s) to alter (influence) market prices

How The Economy as a Whole Works
<span style="color: rgb(33, 54, 222)"> - a country's living standard depends on __productivity__
 * PRINCIPLE 8: A COUNTRY'S STANDARD OF LIVING DEPENDS ON ITS ABILITY TO PRODUCE GOODS & SERVICES**
 * <span style="color: rgb(4, 143, 33)">productivity: ** amount of goods & services produced each hour

<span style="color: rgb(33, 54, 222)">**PRINCIPLE 9: PRICES RISE WHEN THE GOVERNMENT PRINTS TOO MUCH MONEY** - when too much money is printed, the value goes down - high inflation: rapid growth of quantity of money - low inflation: slow growth of quantity of money - in society, the goal is to keep inflation low b/c high inflation goes through numerous price changes (want to keep society "constant")
 * <span style="color: rgb(4, 143, 33)">inflation: ** price rise in economy

<span style="color: rgb(33, 54, 222)">**PRINCIPLE 10: SOCIETY FACES A SHORT-RUN TRADE-OFF BETWEEN INFLATION AND UNEMPLOYMENT** - societies can't always run smoothly; they reach bumps on the way as well - when one business is well of, the competing business may not, which may lead to unemployment - economy can't always benefit everyone: when some people benefit, others lose
 * <span style="color: rgb(4, 143, 33)">business cycle: ** fluctuations in economic activity (employment, production)

=QUESTIONS FOR REVIEW= Q1: What is the opportunity cost of studying for AP ECON? A1:<span style="color: rgb(138, 10, 116)"> The opportunity cost of studying for AP ECON could be several things. It may include hanging out with your friends, or going to the movies. (But we all know studying for AP ECON is worth it!!! :P)

Q2: Is marginal benefit of water higher than Prada bags? A2: <span style="color: rgb(138, 10, 116)">This always depends on one's circumstances, but in general, no, the marginal benefit of water is not higher than Prada bags. The marginal benefit of necessities such as water tend to be lower compared to luxuries such as Prada bags. Because water is abundant, people think that it shouldn't cost as much as expensive limited-editioned bags. Thus, the marginal benefit of water is lower than the marginal benefit of Prada bags.

Q3: What is economics and how is it important in societies? A3:<span style="color: rgb(138, 10, 116)"> Economics, as mentioned above is a fancy way of describing how people deal with scarcity (limited stuff). If business people or adults who are active in the community don't have any knowledge of economics, the markets won't do very well. Economics helps people make the right decision depending on situations and encourages interactions between people to benefit one another. Without economics, there won't be a sense of productivity and the seriousness of making right decisions.

CITATION http://kr.youtube.com/watch?v=Uax53VTdkOg http://www.kodak.com/US/images/en/corp/1000nerds/lund/nerdGirl.jpg http://news.rosettamoon.com/wp-content/uploads/2008/06/cartoon_carbon_gas_elevator.jpg