1. Ten Principles of Economics
Economics is the study of how people or societies manage their scarce
resources. There are three basic questions of economics:
1. What must be produced?
2. How should it be produced?
3. For whom should it be produced?
The management of a society’s resources is important because all resources are
Limited (or scarce).
Scarcity: society has limited resources and therefore can’t produce all the
goods and services people wish to have.
Economics looks at how:
- people make decisions
- people interact with each other
- larger forces and trends affect the economy as a whole

2. Principle #1- People Face Trade-Offs
* To get one thing, we usually have to give up another
* Efficiency v. Equity
Principle #2- The Cost of Something is What You Give Up to Get It
* Decisions require comparing cost and benefits of alternatives
* The opportunity cost of an item is what you give up to get it
Principle #3- Rational People Think at the Margin
* Marginal changes are small, incremental adjustments to an existing plan
of action
Principle #4- People Respond to Incentives
* Marginal changes in costs or benefits motivate people to respond
Principle #5- Trade Can Make Everyone Better Off
* People gain from their ability to trade with one another

3. Principle #6- Markets Are Usually a Good Way to Organize Economic
Activity
* A market economy is one that divides up the distribution and sale of
resources through many different businesses and households
Principle #7- Government Can Sometimes Improve Market Outcomes
* Market failure occurs when the market fails to divide up resources
efficiently
* When the market fails, the government can step in to help promote
efficiency and equity
Principle #8- The Standard of Living Depends on a Country’s Production
* Standard of Living can be measured by either:
- comparing personal incomes
- comparing the total market value of a nation’s production

4. Principle #9- Prices Rise When the Government Prints Too Much Money
* Inflation is an increase in the overall level of prices in the economy
Principle #10- Society Faces a Short-Run Trade-Off Between Inflation and Unemployment
* Inflation ↓↓ = Unemployment ↑↑