Chapter 1-Ten Principles of Economics
Scarcity: The limited nature of society’s resources
Economics: The study of how society manages its scarce resources
How People make Decisions
Principle #1: People Face Tradeoffs
Efficiency: The property of society getting the most it can from its scare resources.
Equity: The property of distributing economic prosperity fairly among the members of
Principle #2: The Cost of Something is what you Give up to Get It.
Opportunity Cost: Whatever must be given up to obtain some item.
Principle #3: Rational People Think at the Margin
Rational People: People who systematically and purposefully do the best that they can to
achieve their objectives.
Marginal Changes: Small incremental adjustments to a plan of action.
Principle #4: people respond to incentives
Incentive: something that induces a person to act
How People Interact
Principle #5: Trade Can Make Everyone Better Off
Principle #6: Markets Are Usually a Good Way to Organize Economic Activity
Market Economy: Economy that allocates resources though the decentr