10 Principles of individual decision making
Principle 1: people face trade offs
national defense vs consumer goods. Getting the most from scarce resources is efficiency. equality id when equal or uniformly distribution of economic prosperity
Principle 2: opportunity cost, what does this mean
what is given up to get some other thing, the cost of something Is what you given up to get it
Principle 3: rational people think at the margin
rational people do the best possible to achieve their objectives
what does marginal chnages mean in principle 3?
marginal changes means a small increase to an existing event or plan of action. Decision rule means to compare marginal benefits to marginal costs
Principle 4: what does the idea of incentive mean?
people respond to incentives, something that induces an action
Principle 5: trade can make everyone better off
trade leads to specialization among nations it lowers costs
Principle 6: market economy, what does this mean
markets are usually a good way to organize economic activity. Economy in which firms and households decisions intersects to allocate productive resources and consumers goods and services
Principle 7: Governments Can Sometimes Improve market outcomes
- Govt is in the economy to mairitain rules and institutions
- property rights: relates to individuals ownership and control over scarce resources
- market failure: relates to individual ownership and control over scarce resources efficiently
- externality: effects of someone's action on the well-being of another
- Market power: relates the ability to substantially control
markel price by a small actors on a grony
Principle 8: a country's standard of living.
depends on its ability to produce goods&services
Average American has an income of about $44,260.
Productivity relates to quantity of goods and services produced from each unit of labor input
Principle 9. Prices rise when the government prints too much money.
Inflation relates to an increase in the overall level of prices
Principle 10: society faces a short run
Trade off between inflation and unemployment
short run inflationary economy can stimulate the economy, more goods and services more hires, higher prices and low unemployment
business cycle in the economy