Chapter+1+JK+&+JJ

chapter 1 - ten principles of economics. 1. People Face Trade-offs 2. The Cost of Something Is What You Give Up to Get It 3. Rational People Think at the Margin 4. People Respond to Incentives 5. Trade Can Make Everyone Better Off 6. Markets Are Usually a Good Way to Organize Economic Activity 7. Governments Can Sometimes Improve Market Outcomes 8. A Country's Standard of Living Depends on Its Ability to Produce Goods and Services 9. Prices Rise WHen the Government Prints Too Much Money 10. Society Faces a Short-Run Trade-off between Inflation and Unemployment media type="youtube" key="VVp8UGjECt4" height="344"

chapter 1 Fundamental lessons: -People face trade offs -Cost of any action is measured in the opportunity costs that accompanies that decision -Rational people think on the margin -Behaviors are affected be incentives -trades can be mutually beneficial(think about it, why would you trade if you can’t benefit from it?) -markets are usually good way of coordinating trade among people -governments can improve market outcomes in case of market failure FYI: adam smith and the invisible hand: Adam Smith proposed the idea of invisible hands. Basically, he thought that the invisible hand, or the power of the private market is enough to keep the market going, thus government intervention with the market should be minimized, if not eradicated. He thought that this was due to the greed of human nature, which made everybody work for their own benefit.

Productivity is the ultimate source of living standards. A country's living standard is based on the productivity of the nation. As the productivity goes up, the living stardard goes up, also. Money growth is the ultimate source of inflation. When the amount of money increases, while resources are limited, or scarce, it is obvious that inflation occurs. When inflation occurs, money we use might end up not having that much value. Society faces a short-run trade between inflation and unemployment. If many people are employed, it is obvious that they will spend the money they earned and end up causing inflation in the short-run.

chapter 1 key concepts scarcity: the limited nature of the resources that we can use to make goods and services economics: Study of how to manage the limited, or scarce, resources efficiency: How well the society is getting the most it can from the limited resources equity: How fairly the resources are distributed among the society members opportunity cost: What was given up in order to gain something else rational people: People trying to reach their goal with the best effort marginal changes: small adjustments incentive: Catalyst of an action market economy: Economy that distributes its resources by using the decentralized decisions of many different members of its economy property rights: Being able to own and control over resources market failure: situation where the market failed to distribute resources efficiently externality: Impact of one’s actions on a innocent bystander market power: Ability of a single or small group of people to have influence on market price productivity:Quantity of goods and services produced in a hour by a worker inflation: Increase in the overall prices in the economy business cycle: cycle an economy goes through which affects things such as the employment rate and production

Sources: http://www.theatlantic.com/issues/98mar/images/fatcat.gif http://www.norcalblogs.com/watts/images/TenPrinciples.gif http://bernardaw.files.wordpress.com/2009/01/unemployment.jpg Back to home!