Chapter1+JDEM

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==== //Remember, Economics is the study of Scarcity. Human desire is unlimited, but it is an inevitable fact that resources are, in fact, limited. Thus, this chapters lays out the main points economics tries to maximize the efficiency and equity of the resources. The chapters following this chapter will be elaborating on the points mentioned here. All these ten categories are fundamentally grouped into the three Big Questions : How people make decisions, How people interact, and lastly, how the economy works as a whole.// ====

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Scarcity
Everything has a limit (we lack an infinite amount); scarcity. Economics is the study of this scarcity; how we distribute scarce resources. To study scarcity, economists study the decisions people make to deal with scarcity: efficiency vs. equity.

Efficiency vs. Equity
====Efficiency is a method of distributing resources. Equity is a method of distributing wealth/economic prosperity. Efficiency refers to how you distribute resources, Equity refers to how you distribute wealth. The more equitably you try to distribute wealth, the less efficiently you distribute resources. "efficiency refers to the size of the economic pie, equity refers to how the pie is divided"====

Opportunity Cost
====People must make tradeoffs to get what they want. Besides material(physical) costs, there are also opportunity costs. An opportunity cost is the cost of missed opportunities/rejected opportunities, caused by choosing to get what that person wants.====

=__ 1. How do people make decisions? __=


 * ====Principle 1: Trade-offs====
 * ====People face trade-offs. Your decisions will be determined by how much you have to give up, in order to get the desired outcome.====
 * ====Principle 2: Costs====
 * ====The cost of an object is what needs to be given up in order to attain it. This cost includes the opportunity cost.====
 * ====Principle 3:Rational people think at the margin====
 * ====Economists assume that people are rational. Rational people (see vocab below) will make marginal changes to plans, based on a comparison on the marginal cost and benefit of a choice.====
 * ====Principle 4: Incentives====
 * ====Since rational people weigh the marginal costs and benefits of a choice, they will respond to incentives.====

= = =__ 2. How do people interact? __=
 * ====Principle 5: trade====
 * ====trading with others allows specialization of labor and/or resources.====
 * ====Principle 6: markets====
 * ====In a market economy people make their own decisions about how to allocate resources. Adam Smith's theory of the invisible hand states that a market economy succeeds because the choices made by individuals leads to desirable market outcomes (equilibrium).====
 * ====Principle 7: Government's Role====
 * ====The "invisible hand" theory only works when the government enforces rules (such as property rights)====
 * ====The invisible hand cant promote market efficiency or equity====
 * ====just because a government CAN improve market outcomes doesnt mean they WILL====

=__ 3. How does the economy as a whole work? __=

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 * ====Principle 8: Standard of living====
 * ====Differences in standard of living are a result of differences in productivity (see vocab below).====
 * ====Productivity and S.O.L have a direct relationship (one goes up, the other goes up. one goes down, the other goes down).====
 * ====Principle 9: Prices and inflation====
 * ====When large quantities of money are printed, the value of that money will drop. This means that prices (as a whole) will increase- since each unit of currency is now worth less than it was before.====
 * ====Principle 10: Inflation vs. unemployment====
 * ====The short term effect of inflation: 1. stimulates overall spending 2. increases quality 3. lowers unemployment====
 * ====The long term effect of inflation: the opposite of short term effects====

the 10 principles of economics are principles by which every economy moves. They are principles that are true for any economy. This is true because these princples explain the parameters for decisions making, in regards to scarcity. Everyone needs to make decisions- individuals, firms, governments- the principles of economics explains how they do so.

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=Glossary =


 * Scarcity**
 * The limited nature of societies 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. Distributing resources so they will be most EFFECTIVE/EFFICIENT when used.
 * Equity**
 * The property of distributing economic prosperity fairly among members of society. Making an effort to distribute economic prosperity so there is little/no wealth gap
 * Opportunity Cost**
 * Whatever must be given up to obtain some item. This cost also includes other opportunities that were lost in favor of pursuing the current decision.
 * 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. These incentives can be positive or negative- rewards or punishments.
 * Market Economy**
 * An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.
 * An economy where individual firms and household make their own decisions, when interacting in the market for goods and services. Their decisions are not dictated by a centralized body (such as the government)
 * Property rights**
 * The ability of an individual to own and exercise control over scarce resources.
 * Market Failure**
 * A situation in which a market has left on its own fails to allocate resources efficiently. A situation where the market does not reach equilibrium on its own.
 * Externality**
 * The impact of one person's actions on the well-being of a bystander. Can be a positive of negative impact. The impact is an unintended side effect of the action.
 * Market Power**
 * The ability of a single economic actor (or small group of actors) to have a substantial influence on market prices. When one household/firm (or a small group of household/firms) is able to affect prices by more than the usual amount brought on by the change in demand/supply.
 * Productivity**
 * The quantity of goods and services produced from each hour of a worker's time. The amount of goods produced from the amount of time (1 hour) that a person works.
 * Inflation**
 * An increase in the overall level of prices in the economy.
 * Business Cycle**
 * Fluctuations in economic activity, such as employment and production. These fluctuations are irregular and largely unpredictableasd

citations : Based on Mankiw, Principle of Microeconomics