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Economics Chapters 1 and 2: - Coggle Diagram
Economics Chapters 1 and 2:
Part 1: Introduction.
1.1 How people Make Decisions.
Principle 1: People Face Tradeoffs.
Efficiency: Society getting the most it can from scarce resources.
Equity: Economic Propserity distributed fairly among society members.
Principle 2: The Cost of Something is What You Give Up to Get It.
Opportunity Cost: Whatever you must give up to get something.
Principle 3: Rational People Think at the Margin.
Rational People: People who do the best they can, systematically and purposefully, to reach certain objectives.
Marginal Changes: Small adjustments made incrementally to a plan of action.
Marginal Beneft = depends on how much of a product a person already has, and how much benefit an extra unit of a product will yield.
Principle 4: People Respond to Incentives.
Incentive = something that induces a person to act.
Incentives = crucial to understanding markets, i.e. a higher market price provides an incentive for buyers to consume less and gives sellers incentive to produce more.
1.2: How People Interact.
Principle 5: Trade Can Make Everyone Better Off.
Trade allow nations to specialize in their best abilities and enjoy greater varieties of services and products.
Principle 6: Markets Are Usually a Good Way to Organize Economic Activity.
Market Economy: Economy that gains resources through the decentralized decisions of interacting households and firms through markets (for products and services).
Principle 7: Governments Can Sometimes Improve Market Outcomes.
Property Rights: An Individual's ability to exercise control and own scarce resources.
Market Failure: A market which fails to effectively gain resources efficiently on its own.
Externality: A person's impactful actions on a bystander's
well - being (i.e. pollution).
Market Power: A single economic actor's (or small groups of actors') substantial market price influence.
1.3: How the Economy as a Whole Works.
Principle 8: A Country's Standard of Living Depends on Its Ability to Produce Goods and Services.
Productivity: Product and service quantity produced from each hour of a worker's time.
To boost living standards, policmakers must increase productivity by making sure workers are smart, and have access to the best technology and supplies.
Principle 9: Prices Rise when the Government Prints Too Much Money.
Inflation: Increase in an economy's overal level of prices.
Inflation = caused by the growth of the quantity of money.
i.e. When large amounts of money are printed by the government, the money's value falls dramatically.
Principle 10: Society Faces a Short - Run Tradeoff between Inflation and Unemployment.
Business Cycle: Economy Activity fluctuations, i.e. fluctuations in production and employment.
More hiring = lower unemployment.
Overall spending level = stimulated by increased economy money.
Higher demand = overtime raised prices by firms.
1.4: Conclusion.
Mastering these insights takes effort, but is not overwhemling.
Chapter 2: Thinking Like an Economist.
2.1 The Economist as Scientist.
2 - 1 A: The Scientific Method: Observation, Theory, and More Observation.