Principle 1 -People face trade offs (we make choices). Would I rather study for macro or go and
Principle 2 –Opportunity cost is the choice you give up to achieve another one
Principle 3- Rational people think at the margin. Making decisions that make you happier,
thinking at increments. (Extra, additional). Comparing the extra cost and the extra benefit.
(Going to school an extra four years).
Principle 4- People respond to incentives. An incentive is something that induces a person to act
i.e. an reward or punishment. (Paying students 20$ to attend class. Doing something to make
people do something).
Principle 5 – Trade can make everyone better off –if you do something your good at and trade it
with someone else that specializes in something they are good at, it benefits everybody.
Principle 6 –Markets are usually a good way to organize economic activity. To allow people to
produce and consume whatever they want. Adam smith introduced the “invisible hand” to show
an invisible notion of how the market allocates.
Principle 7 –Governments can sometimes improve market outcomes. Government is there to
restrict our market. i.e. enforce property rights, promote efficiency, promote equity.
Principle 8- A country’s standard of living depends on its ability to produce goods and services.
Productivity: become better at doing something and producing more.
Principle 9- Prices rise when the government prints too much money. Inflation: increase in the
general level of prices. Government has affect on prices, when they print too much money
things get out of control.
Principle 10- Society faces short-run tradeoffs between inflation and unemployment. Prices
increase while unemployment decreases and vice-versa. Every year government tries to control
Economist play two roles: Scientists (try to explain the world) & Policy advisers (try to improve
You make a model to explain how things are. Economist use these models to show how the
Positive statements – which attempt to describe how the world is. Wrong or right
Normative statements – which attempt to prescribe how the world should be.
As price falls demand increases
Many other factors affect demand of a product, not only price
Price- causes movement along the D curve
# of buyer/Income/Price of related goods/Tastes/Expectations- shifts the D curve Demand for a normal good is positively related to income. ( coffee, cars. Something you like,
while inferior goods are things you don’t like .i.e. buses)
Every time you have a higher income the demand curve will shift