Chapter+1+Ten+Principles+of+Economics+JBS

= Chapter 1 Ten Principles of Economics JBS = 

 **Key Terms:**



**Scarcity**- the limited nature of society's resources


 * Economics**- the study of how society manages its scare 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 households as they interact in markets for goods and services


 * Property rights**- the ability of an individual to own and exercise control over scarce resources


 * 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 groups 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 

 

Ten Principles of Economics:



**Principle 1: People Face Trade-off**

Example: //“Guns and butter”//

-The more we spend on national defense (guns), the less we can spend on consumer goods (butter). Balance Between 2 Values: //Equity and Efficiency // 

//Opportunity cost// → An item that one has to give up to obtain another
 * Principle 2: The Cost of Something is What You Give Up to Get It**

//Bill Gates would have actually "lost" money when he was picking up that $100. So, he shouldn't have picked up that $100!//


 * Principle 3: Rational People Think at the Margin**

-Rational people often make decisions by comparing marginal benefits and marginal costs

Marginal benefit should be bigger than marginal cost **→** Marginal Benefit (MB) > Marginal Cost (MC) Example: //Airline’s Decision// -It is better to sell a ticket even though in the less price. //Water vs. Diamond// -Although water is essential, the marginal benefit of an extra cup is small because water is plentiful.

-//Incentive// → trigger a person to act
 * Principle 4: People Respond to Incentives**

-Rational people react to incentives

-Existence of an incentive "alters" the behavior Example: Seatbelt

Example: //Trade allows each person to specialize in the activities// "Specialization"
 * Principle 5: Trade Can Make Everyone Better Off**




 * Principle 6: Markets Are Usually a Good Way to Organize Economic Activity**

-A system of economy where //"invisible hand"// exists to control the variables than government regulation.

-Prices are determined in market place.

-To say that the government can improve on market outcomes at times does not mean that it always will.
 * Principle 7: Governments Can Sometimes Improve Market Outcomes**

-"Property rights" need to be enforced
 * Ability of an individual to control scarce resources.

-Invisible hand is powerful, but not omnipotent
 * Government is needed to promote efficiency and equity.

- or else, market failure happens.
 * //Externality// : impact of one person's action on well being of a "bystander"
 * Market power ability of one person to influence market prices

-Depend on //productivity// of the country
 * Principle 8: A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services**

-Increase in overall level of price in economy -The inflation ↑ as the quantity of money ↑
 * Principle 9: Prices Rise When the Government Prints Too Much Money**


 * Principle 10: Society Faces a Short-Run Trade-off between Inflation and Unemployment**

1. Increasing the amount of money in the economy stimulates the overall level of spending and thus the demand for goods and services.

2. Higher demand may over time cause firms to raise their prices, but in the meantime, it also encourages them to increase the quantity of goods and services they produce and to hire more workers to produce those goods and services.

3. More hiring means lower unemployment Inflation ↑ → Unemployment ↓ 

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<span style="font-family: Tahoma,Geneva,sans-serif;"> *Participants in the economy are motivated by self-interest and that the “Invisible hand” of the marketplace guides this self-interest into promoting general economic well-being. According to Adam Smith, //"Invisible hand" is// //a term economists use to describe the self-regulating nature of the marketplace//<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">.



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These cross-word puzzle will help you to remember the basic words that YOU NEED TO KNOW. So try it ! (:

<span style="color: #ff0000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> <span style="color: #ff0000; font-family: Tahoma,Geneva,sans-serif;">**Bibliography:** <span style="font-family: Tahoma,Geneva,sans-serif;"> <span style="color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> <span style="color: #000000; font-family: Tahoma,Geneva,sans-serif;">http://www.chrisd.ca/blog/2386/the-worlds-richest-geeks/ http://www.incentivemusic.com/cascadadyce/ http://www.kidspast.com/world-history/0026-specialization-of-labor.php http://geoffmartin.wordpress.com/page/2/