LU 1: Introduction to Economics (10 Principles of Economics ( People face…
LU 1: Introduction to Economics
10 Principles of Economics
Trade can make everyone better off
People gain from their ability to trade with one another.
Markets are usually a good way to organize economics activity
Market economy is an allocates resourses through decentralized decisions of many firms and household.
People respond to incentives
Rational people think at the margin
People make decisions by comparing costs and benefits at the margin.
A country's standard of living depends on its ablity to produce goods and service
:explode:Compare by: total market value of a nation's production.
:explode:Compare by: personal income
The cost of something is what yoou give up to get it
Prices rise when the government prints too much money.
People face trade-offs
Society faces a short-run trade-off between inflation and unemployment
Governments can sometimes improve market outcomes.
:black_flag:Market work only if property rights are enforced.
:black_flag:Market failure occurs when the market fails to allocate resourses efficiently.
A. How People Make Decisions
B. How People Interact
C. How the Economy As A Whole Works
2 Economic Models
is a visual model of the economy that shows how dollars flow through markets among households and firms.
Production possibilities frontier
is a graph shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology.
one who manages a household
Interdependence and the Gains from Trade
:!?: Why determines the pattern of production and trade?
:!?:What should each person produce?
:red_flag: Who should produce what?
:red_flag:How much should be traded for each product?
producer requires a smaller quantity of inputs
called descriptive analysis
called prescriptive analysis