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Introduction To Economics (HOW PEOPLE MAKE DECISONS (P2: The Cost of…
Introduction To Economics
ECONOMY (GREEK WORD)- one who manages a household
Study of how society manages its scarce resources
HOW PEOPLE MAKE DECISONS
P2: The Cost of Something Is What You Give Up to Get It
Decisions require comparing costs and benefits of alternatives
P3: Rational People Think at the Margin
Marginal changes are small, incremental adjustments to an existing plan of action.
P1: People Face Trade-Offs
To get one thing, we usually have to give up another thing.
P4: People Respond to Incentives
Marginal changes in costs or benefits motivate people to respond
HOW PEOPLE INTERACT
P6: Markets Are Usually A Good Way To Organize Economic Activity
-Household decide what to buy and who to work for
-Firms decide who to hire and what to produce
P5: Trade Can Make Everyone Better Off
Trade allows people to specialize in what they do best
P7: Governments Can Sometimes Improve Economic Outcomes
-Markets work only if property rights are enforced
HOW THE ECONOMY AS A WHOLE WORKS
P10: Society Faces A Short -run Trade-Offs Between Inflation And Unemployment
Short-run trade-offs to analysis the business cycle
P9: Prices Rise When The Government Prints Too Much Money
The growth in the quantity of money causes inflation
P8: A Country 's Standard Of Living Depends On Its Ability To Produce Goods And Services
All variations in living standards are explained by differences in countries productivities
ECONOMIC MODELS
The Circular Flow Diagram
Visual model of the economy that shows how dollars flow through markets among households and firms
The Production Possibilities Frontier
A graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
-Efficiency
Trade-offs
-Opportunity cost
Economic growth
POLICY ADVISORS
Normative Analysis
Positive Analysis
Comparative advantage &
Absolute advantage