LU 1: Introduction to Economics
10 Principles of Economics
- Trade can make everyone better off
- Markets are usually a good way to organize economics activity
- People respond to incentives
- Rational people think at the margin
- A country's standard of living depends on its ablity to produce goods and service
- 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
2 Economic Models
Circular flow
Production possibilities frontier
one who manages a household
example: 
example: 
example: 
Interdependence and the Gains from Trade
2 Advantage
⁉ Why determines the pattern of production and trade?
Comparative advantage
Absolute advantage
🚩 Who should produce what?
🚩How much should be traded for each product?
producer requires a smaller quantity of inputs
⁉What should each person produce?
example: 
example: 
example: 
- Governments can sometimes improve market outcomes.
example: 
A. How People Make Decisions
B. How People Interact
C. How the Economy As A Whole Works
✅Efficiency
✅Equity
People make decisions by comparing costs and benefits at the margin.
People gain from their ability to trade with one another.
Market economy is an allocates resourses through decentralized decisions of many firms and household.
🏴Market work only if property rights are enforced.
🏴Market failure occurs when the market fails to allocate resourses efficiently.
💥Compare by: total market value of a nation's production.
💥Compare by: personal income
is a visual model of the economy that shows how dollars flow through markets among households and firms.
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.
Normative Analysis
Positive statements
Normative statements
called descriptive analysis
called prescriptive analysis