The Ten Principles of Economics

Principle 1: People face trade-off No such thing as free Trade offs happen everyday Opportunity costs Everyone makes choices everyday, choices on what to buy or how they will spend their time. society's trade off between efficiency and equity. When a society is trying to raise it equity it may be diminishing its efficiency, and vice-versa.

Principle 2: The Cost of something is what you give up to get it. Cost vs. Benefit Opportunity cost is what one gives up to gain something By looking at the cost and benefits of the trade one can decide if he/she will go through the trade or not.

Principle 3: Rational people think at the margin. Rational people are people who do the best they can do to get their objectives. Because things are not always black and white, economist must make marginal changes which are small changes in plan that best fits the situation they are faced with.

Principle 4: People respond to incentives. incentives are something that makes people act they way they do The decisions they make depend on many factors, cost, quantity etc. Rational people respond to incentives, that allow them to benefit

Principle 5: trade can make everyone better off. Trade can benefit both sides By specializing in certain products

Principle 6: Markets are usually a good way to organize economic activity. Not controlled by government, controlled by sellers and buyers. Invisible hand, make everything go to equalibrium

Principle 10: Society faces a short-run trade-off between inflation and unemployment. Business cycle: fluctuations in economic activity, such as employment and production Inflations can be beneficial to society