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Learning unit 1 (Principle of economics (Principle 7 : Governments can…
Learning unit 1
Principle of economics
Principle 1 : People face trade-offs
To get one thing, we usually have to give up another thing
Principle 2 : The cost of something is what you give up to get it
opportunity cost = an item is what you give up to obtain that item :moneybag: :moneybag: :moneybag:
Principle 3 : Rational people think at the margin
People make decisions by comparing cost and benefit at the margin
Principle 4 : People respond to incentives
Marginal changes in costs or benefit motivate people to respond
Principle 5
: Trade can make everyone better off
People gain from their ability to trade with one another :recycle: :recycle:
Principle 6 : Markets are usually a good way to organize economic activity.
:red_flag:ADAM SMITH. 'INVISIBLE HAND'
:warning: A market economy is an economy that allocates resource through the decentralized decisions of many firm and household as they interact in market for good and services
Principle 7 : Governments can sometimes improve market outcomes
Market work
Property right are enforced
:check:the ability of an individual to own and exercise control over a scarce resource
Market failure
:check:occurs when the market fails to allocate resource efficiently
:green_cross:when market fails government can intervene to promote efficiency and equity.
Principle 8 : A country's standard of living depends on its ability to produce goods and services
Standard of living may measured :star:by comparing personal incomes AND :star:by comparing the total market value of a nation's production
Principle 9 : Prices rise when the government prints too much money
inflation
increase in the overall level of prices in the economy
Principle 10 : Society faces a short-run trade-off between inflation and unemployment
fluctuations in economic activity, such as employment and production
Economic models
the circular flow diagram
Firms
:no_entry:Produce and sell goods and services
:no_entry:Hire and use factors of production
Households
Buy and consume goods and services :fire:
own and sell factors of production :fire:
markets for goods and services
:<3:Firms sell
:<3:household buy
Markets for factors of production
:red_cross::Households sell
:red_cross:firms buy
the production possibilites frontier
The concepts illustrated by the production possibilities frontier
:smiley:efficiency
:smiley:trade-offs
:smiley:opportunity cost
:smiley:economic growth
