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10 PRINCIPLES OF ECONOMICS - Coggle Diagram
10 PRINCIPLES OF ECONOMICS
1) People face trade-offs
Scarce resources
Investing today for consumption tomorrow
Government spending priorities
Efficiency
Society gets the most that it can from its scarce resources
Equity
Benefits of those resources are distributed fairly among the members of society
2) The cost of something is what you give up to get it
Opportunity cost
The opportunity of any decision is the value of the next best alternative that the decision forces the decision maker to forgo
3) Rational people think at the margin
Weighting up marginal costs & marginal benefits
Thinking at the margin
To let the past go & to think forward to the next hour, day, year @ dollar that u use up in time @ money
Margin = additional
Marginal changes are small, incremented adjustments to an existing plan of action
4) People respond to incentives
Marginal benefits exceed its marginal costs
Marginal cost is the extra cost of adding 1 unit
Marginal benefit is the extra benefit of adding 1 more unit
People make decisions by comparing costs & benefits at the margin
5) Trade can make everyone better off
6) Markets are usually a good way to organize economic activity
A market eco is an eco that allocates resources through the decentralized decisions of many firms & households as they interact in markets for goods & services
7) Governments can sometimes improve market outcomes
Property rights are the ability of an individual to own & exercise control over a scarce resource
Market failure occurs when the market fails to allocate resources efficiently
Caused by externality
The impact of 1 person @ firm's actions on the well-being of a bystander
Caused by market power
The ability of a single person @ firm to unduly influence market prices
8) A country's standard of living depends on its ability to produce goods & services
Productivity is the amount of goods & services produced from each hour of a worker's time
9) Prices rise when the government prints too much money
Inflation is an increase in the overall level of prices in the economy
10) Society faces a short-run trade-off btw inflation & unemployment
The Philips Curve illustrates the trade-off btw inflation & unemployment