IE book. Lesson 2. Ten Principles of Economics, etc.
Table 1-1: Ten Principles of Economics
How People Make Decisions (HOWPEOPLE MAKEDECISIONS)
People face trade-offs – Every choice involves giving up something to gain something else.
The cost of something is what you give up to get it – Opportunity cost measures the sacrifice made for a decision.
Rational people think at the margin – Decisions are made by considering small incremental changes.
People respond to incentives – Changes in benefits or costs influence people's behavior.
How People Interact (HOWPEOPLEINTERACT)
Trade can make everyone better off – Exchange allows specialization and mutual benefits.
Markets are usually a good way to organize economic activity – The price system coordinates millions of economic decisions.
Governments can sometimes improve market outcomes – Regulations and interventions can correct market failures.
How the Economy as a Whole Works (HOWTHECONOMY ASAWHOLEWORKS)
A country's standard of living depends on its ability to produce goods and services – Productivity is the key factor for economic growth.
Prices rise when the government prints too much money – Inflation results from an excess of money in circulation.
Society faces a short-term trade-off between inflation and unemployment – In the short run, monetary policies can influence both.
Key Concepts
Scarcity, p. 4
Marginal changes, p. 6
Productivity, p. 12
Economy, p. 4
Market economy, p. 9
Inflation, p. 13
Efficiency, p. 5
Market failure, p. 11
Phillips curve, p. 14
Equity, p. 5
Externalities, p. 11
Opportunity cost, p. 6
Market power, p. 6