Ten Principles of Economics
- The fundamental lesson about individual decision making are that people face trade-offs among alternative goals, that the cost of any action is measured in terms of forgone opportunities, that rational people make decisions by comparing marginal cost to marginal benefits, and that people change their behavior in response to the incentives they face.
- The fundamental lesson about interactions among people are that trade and interdependence can be mutually beneficial, that markets are usually a good way of coordinating economic activity among people, and that the government can potentially improve market outcomes by remedying a market failure or by promoting greater economic equality.
- The fundamental lessons about the economy as a whole are that productivity is the ultimate source of living standards, that growth n the quantity of money is the ultimate source of inflation, and that society faces a short-run trade-off between inflation and unemployment.
Ten Principles of Economics:
1. People face trade-offs
2. The cost of something is that you give up to get it
3. Rational people think of the margin
4. People respond to incentives
5. Trade can make everyone better off
6. Markets are usually a good way to organize economic activity
7. Governments can sometimes improve market outcomes
8. A country’s standard of living depends on its ability to produce goods and services
9. Prices rise when the government prints too much money
10. Society faces a short-run trade-off between inflation and unemployment.
Thinking Like an Economist
- Economists try to address their subject with a scientist’s objectivity. Like all scientists, they make appropriate assumptions and build simplified models to understand the world around them. Two simple economic models are the circular-flow diagram and the production possibilities frontier.
- The field of economics is divided into two subfields: microeconomics and...