Chapter+1+-+Micro



=Chapter 1 - Principles of Economics by N. Gregory Mankiw=

Economy can be defined by the 10 Principles of Economics.

Principle 1: People Face Trade-offs
This principle is about how people must give up to get whatever they want. People everyday must make decisions such as spending money on something or another. Principle 1 talks about how these choices that people make lead to the loss in something due to that choice. For example, if a person spends money on buying a pack of gum, he now has that much less to buy anything else. The book gives the example of a trade-off with the "guns and butter" trade off. While a society is spending money and effort on making guns, it has less to spend on making butter. Another type of trade-off is the Efficiency vs. Equity. Efficiency vs. Equity basically means when a society gets their hands on something, will it give it to the people that can make the most out of it or the share it among the people equally.

Principle 2: The Cost of Something Is What You Give Up to Get It
Opportunity Cost is a major key factor in studying economy. Opportunity Cost is what one has to give up to get another good. For example, if one chooses to do an play for an hour instead of studying, his opportunity cost for playing is an hour of studying, which can lead to a lower grade since he didn't study that extra hour. In trade and production of goods, companies and economists look at the opportunity cost to see if a trade or production is effective.

Principle 3: Rational People Think at the Margin
Rational people always do their best to achieve their goals. Rational people take a look at the opportunity costs in every situation and choose the choice that they think best suits them. However, most of the times, the choices given aren't just this or that, but can have a midpoint. What this chapter means is that rational people look for and make marginal changes to take the best advantage in a situation.

Principle 4: People Respond to Incentives
Principle 4 relates to the previous principles. Incentives are basically rewards or punishments. The book gives LeBron James as an example of where incentives played a major role. Incentives induces people to act, or make decisions. Rational people take incentives a lot into their calculation because incentives can either be beneficial, but also not beneficial.

Principle 5: Trade Can Make Everyone Better Off
To put this simple, trade benefits everyone by allowing individuals specialize in whatever they are good at and use that skill to trade for anything they need. Today, we trade almost every day for anything. For example, your parents go to work and are specialized in that job. Because trade is available, they are allowed to work and not have to learn how to farm to make their own food. Instead of learning how to farm, they instead work, get paid, and trade in that money for the necessities that they need.

Principle 6: Markets Are Usually a Good Way to Organize Economic Activity
Markets are very efficient way of organizing economic activities. The market is not controlled by the government, but rather by the sellers and buyers. The market is also controlled by what is called "the invisible hand". This is basically the demand and supply of an good which later on determines the price of an item. Firms and households, both sometimes buyers and sometimes sellers, go through the market to hire workers or buy goods. The market system is so efficient because this system supports both the buyers as well as the suppliers to continue their production.

Principle 10: Society Faces a Short-Run Trade-Off between Inflation and Unemployment
Inflation, although known to be a negative impact on the economy, in the short run, actually can be good. Because the prices of all the goods and services increased, this means that companies will have to raise their prices on their products as well. Also, since they need to make more money, companies will need to produce more goods. This will lead to the need for more workers, eventually lowering the unemployment. Therefore, it is possible to say that inflation is good in the short run.

=10 Principles of Economics - "simplified" by Yoram Bauram= media type="youtube" key="VVp8UGjECt4&hl=ko&fs=1" height="344"

__Vocabulary:__
 * Principles of Economics**
 * Scarcity**: the limited nature of society's resources.
 * Economics**: the study of how society manages its scarce resources.
 * 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.
 * Opportunity Cost**: whatever must be given up to obtain some item.
 * Rational People**: people who systematically and purposefully do the best they can to achieve their objectives.
 * Marginal Changes**: small incremental adjustments to a plan of action.
 * Incentive**: something that induces a person to act.
 * Market Economy**: an economy that allocates resources through the decentralized decisions of many firms and housholds as they interact in markets for goods and services.
 * Market Failure**: a situation in which a market left on its own fails to allocate resources efficiently.
 * externality**: the impact of one person's actions on the well-being of a bystander
 * Market Power**: the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices.
 * Productivity**: the quantity of goods and services produced from each hour of a worker's time.
 * Inflation**: an increase in the overall level of prices in the economy.
 * Business Cycle**: fluctuations in economic activity, such as employment and production.

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