Chapter+One

=Chpt. 1   = =Ten Principles of Economics    = 

Summary:
<span style="font-family: 'Comic Sans MS',cursive;"> An economy is just simply a group of people interacting with one another going after their own goals. Economics is the study of how human manages its scarce resources. This chapter will be talking about the 10 principles of economy that allow it to function. People trade with one another trying to benefit themselves; their costs are measured by the opportunities they lose. The market usually organizes trade, however there are cases where the market faces failure.

<span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;">Vocabulary:
<span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;">**Scarcity**: is the limited nature of society’s resources.
 * Economics**: is the study of how society manages its scarce resources
 * Efficiency**: is when society gets the most it can from its limited resources
 * Equity**: is the distribution of economic prosperity fairly amongst people.
 * Opportunity cost**: Things that are given up to get something
 * Marginal changes**: a change in plan of the way things is done
 * Incentive**: something that makes one want to do something
 * Market economy**: is an economy that spreads its resources in fair ways amongst the firms and households as they interact with one another.
 * Property rights**: is an ability of a person to own and exercise control over scarce resources
 * Market failure**: is when a market is unable to spread its resources efficiently
 * Externality**: is when one person’s action affects another person
 * Market power**: is the ability for one person to have substantial influence on market price
 * Productivity**: the amount of goods and services made by the workers
 * Inflation**: is an increase in the overall level of price in the economy

<span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;">Principle 1: People face trade-off
<span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"> A thing to keep in mind when making decisions is that there is so such thing as “free”. Making decisions need trade off between one goal against another. To gain something one must give up something in return (opportunity cost). Everyone makes choices everyday, choices on what to buy or how they will spend their time. For example, a student can go home on Friday and finish all his/her homework and have the rest of the weekend free, or he/she can play right away and leave it off till the last moment, costing their sleep on Sunday night. Another example can be society's trade off between //efficiency// and //equity//. When a society is trying to raise it equity it may be diminishing its efficiency, and vice-versa. Making decisions in these trade offs are all about, what people choose with the choices they are given in the situation they are put in. ===<span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;">Principle 2: The Cost of something is what you give up to get it. === <span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"> When people face trade offs, they must consider two things, the cost and the benefits of that trade. This principle deals with the cost of the trade-off, cost in economics is called opportunity cost. Opportunity cost is what one gives up to gain something. Lets reconsider the example of the student, the student can either play as soon as he/she gets home, or do his/her homework. The cost of playing as soon as the student comes on Friday is the hours of sleep he/she could have slept on Sunday night. By look at the cost and benefits of the trade one can decide if he/she will go through the trade or not. ===<span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;">Principle 3: Rational people think at the margin. === <span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"> Rational people are people who do the best they can do to get their objectives. Rational people decide what to do, how much to spend and everything, to get the most they can. They know that the decisions they make are rarely black and white, therefore they make the best decision with the situation they face. Because things are not always black and white, economist must make marginal changes which are small changes in plan that best fits the situation they are faced with. ===<span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;">Principle 4: People respond to incentives. === <span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"> First of all, incentives are something that makes people act they way they do. Because people are rational they respond to incentives, that allow them to benefit. The decisions they make depend on many factors, cost, quantity etc. Incentives are things that make the difference in the choices they make. The examples of incentives can be Lebron he saw the incentives of earning money and decided to skip college and go straight to NBA.

<span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;">How People Interact
<span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"> ===<span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;">Principle 5: trade can make everyone better off. === <span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;"> Trade isn't winner and loser. Trade can benefit both sides, by specializing in particular things. By specializing in things, both sides of the trade can benefit. For example, there are two farmers, one who specializes in meat products, an one that specializes in vegetable. By both specializing, they can trade with one another and benefit, the farmer who specializes in meat can trade meat for vegetables and vice versa. By doing so both sides can get what they want/ lack.

<span style="font-family: 'Comic Sans MS',cursive;"><span style="font-family: 'Comic Sans MS',cursive;">Principle 6: Markets are usually a good way to organize economic activity.
<span style="font-family: 'Comic Sans MS',cursive;"> Markets are not controlled by the government, they are controlled by the buyers and sellers within the market. This only works because of an idea known as the "invisible hand", the idea that by letting people chase after their own goals, it will still benefit society as a whole. The market system helps both sides of the market, the sellers and the buyers supporting their production.

<span style="font-family: 'Comic Sans MS',cursive;">Principle 10: Society faces a short-run trade-off between inflation and unemployment.
<span style="font-family: 'Comic Sans MS',cursive;"> An important idea to keep in mind while studying this principle is the //business cycle//. This means fluctuations in economic activity, such as employment and production. Society is not perfect, meaning it comes across many problems, such as inflation and unemployment. However inflation is not always bad, in the long run it can also be beneficial. Because prices on everything is increased, price on products are raised as well, this mean because they need to make more money, they will make more products, by doing so, they need more employees.

Media:[[file:10 prinicples.pptx]]
media type="youtube" key="VVp8UGjECt4" height="344" width="425" http://www.youtube.com/watch?v=VVp8UGjECt4

**Questions**:
1. How can both sides of trade benefit? 2. What is the opportunity cost of playing as soon as you get home? 3. How can inflation be beneficial to society?

**Answer**:
1. both sides of trade can be beneficial by specializing in certain products. 2. The hours of sleep you must spend on doing homework. 3. Inflation raises prices, which also increases the price on products, then in order to make money they will raise production levels, which will increase the employment rates, lowering the unemployment rates.