7 Economic Principles

#1 - Scarcity Forces Trade-offs

Limited resources force people to make choices

SCARCITY: rare, limited, not enough for everybody

WE ARE ALWAYS MAKING DECISIONS

#2 - Cost Versus Benefit

Peoples choice depend on the benefits outweighing the costs

COST: what you spend in time, money, or effort to get something (what you lose) BENEFIT: what you gain from something in terms of money, time, experience, or other improvements (what you gain)

#3 Thinking at the Margin

The decisions we make each day involve choices about a little more or little less of something rather than complete change
MARGIN: edge MARGINAL COST: what you give up to add one additional unit of something MARGINAL BENEFIT: what you get to add one additional unit of something

#4 Incentives Matter

People respond to incentives in predictable ways

Incentives can be positive or negative Incentives shape behavior

#5 Trade Makes People Better Off

Focus on what we do well and trade for the rest. People will end up with more and better choices

#6 Markets Coordinate Trade

Markets are generally better at coordinating exchanges between buyers and sellers
MARKET: a place that brings together buyers and sellers

#7 Future Consequences Count

Decisions made today have future consequences, both expected and unexpected