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Ch1 Ten Principles of Economics.doc

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University of British Columbia
ECON 101

TEN PRINCIPLES OF ECONOMICS Economics manage scarce resourceshow people make decision interact force and trend to affect economy 1People face tradeoffs decision give up one thing for anotherEfficiency getting MOST from scarce resourcesproduce moreEquity benefits of resources are FAIRLY distributed amongst society both are hard to achieve at the same time2Cost of something is what you give up to get it decision require comparing costs and benefits of alternativesOpportunity Cost what you give upalternative choice to get what you want 3Rational people think at the marginMarginal edge think along the edge would you consume one moredecision comparing marginal costmarginal benefits 4People respond to incentives when marginal cost benefit from decision CHANGES our decision CHANGES5 Trade can make everyone better offGovernment can sometimes IMPROVE market outcomes Individuals gains from trading allows one to specialize in what theyre good at variety and diversity6Markets are usually a good way to organize economic activity household and firms decide what to buyproducewho to work forhireprices guided decisionsown self interest promote economic well being7Governments can sometimes improve market outcomesinefficiency failure of market then government INTERVENE to promote EFFICIENCY andor EQUITY Causes of market failure 1 Externality ones action impact bystanders 2 Market power ability of small group one person influence market prices monopoly cartel 3 Asymmetric
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