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Manklw's rlnclples of Lconomlcs

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1. !"#$%" '()" *+(,"#''-. 1o geL one Lhlng, you have Lo glve up someLhlng else. ?ou may have heard economlsLs
say Lhere ls no such Lhlng as a free lunch". WhaL Lhey mean by Lhls ls LhaL, for example, you mlghL geL a free bowl
of soup aL Lhe sLudenL co-op, buL Lhe soup ls noL free because you have Lo glve up 33-mlnuLes walLlng ln llne Lo be
served.
2. /0" )#-* #' -#1"*0234 2- 50(* 6#7 428" 7$ *# 4"* 2*. Maklng a declslon requlres comparlng Lhe cosLs and
beneflLs of alLernaLlve courses of acLlon. 1he cosL of one opLlon ls noL how much lL wlll cosL ln dollar Lerms, buL
raLher Lhe value of your second besL alLernaLlve. lor more explanaLlon, see undersLandlng Lhe cosL beneflL
analysls.
3. 9(*2#3(% $"#$%" *023: (* *0" 1(+423. eople make declslons by comparlng Lhe marglnal beneflL wlLh Lhe
marglnal cosL. lor example, you mlghL buy one cup of coffee ln Lhe mornlng because lL helps you sLarL Lhe day,
buL you mlghL noL buy a second cup because Lhls glves you no exLra beneflL (and cosLs anoLher $3).
4. !"#$%" +"-$#3, *# 23)"3*28"-. 8ehavlor changes when cosLs or beneflLs change. lor example, lf your hourly
wage lncreases Lhen you are llkely Lo work more (unless of course your lncome ls already Loo hlgh).
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3. /+(," )(3 1(:" "8"+6#3" ;"**"+ #''. 1rade allows people Lo speclallze ln whaL Lhey do besL. 8y Lradlng, each
person can Lhen buy a varleLy of goods or servlces. lor example, you may be a skllled managemenL consulLanL.
Money you earn Lhrough your consulLlng work mlghL be used Lo bulld a house even Lhough you may noL have Lhe
skllls Lo bulld Lhe house yourself.
6. <(+:"*- (+" 7-7(%%6 ( 4##, 5(6 *# #+4(32=" ")#3#12) ()*282*6. lndlvlduals and flrms LhaL operaLe ln a markeL
economy respond Lo prlces and Lhereby acL as lf gulded by an lnvlslble hand" whlch leads Lhe markeL Lo allocaLe
resources efflclenLly. lor example, lf Lhere ls an oversupply of wheaL on Lhe world markeL Lhen lndlvldual farmers
wlll lower Lhe prlce Lhey charge unLll Lhey can sell all of Lhelr wheaL. Lower wheaL prlces wlll also llkely reduce Lhe
LoLal quanLlLy of wheaL LhaL farmers declde Lo produce. MarkeL prlces are able Lo ad[usL Lo equaLe supply and
demand wlLhouL Lhe need for any cenLral plannlng.
7. >#8"+31"3*- )(3 -#1"*21"- 21$+#8" 1(+:"* #7*)#1"-. SomeLlmes a markeL may fall Lo allocaLe resources
efflclenLly, and governmenL regulaLlon can be used Lo lmprove Lhe ouLcome. MarkeL fallures can occur due Lo Lhe
exlsLence of goods, monopolles and exLernallLles. lor example, an elecLrlclLy suppller mlghL have a monopoly.
CovernmenL regulaLlon may be requlred Lo ensure LhaL Lhe suppller does noL abuse lLs markeL power.
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8. ? )#73*+6@- -*(3,(+, #' %28234 ,"$"3,- #3 2*- (;2%2*6 *# $+#,7)" 4##,- (3, -"+82)"-. A counLry whose workers
produce a large number of goods and servlces per unlL of Llme wlll en[oy a hlgh sLandard of llvlng.
9. !+2)"- +2-" 50"3 *0" 4#8"+31"3* $+23*- *## 17)0 1#3"6. rlnLlng money causes lnflaLlon. When a
governmenL prlnLs money, Lhe quanLlLy of money lncreases and each unlL of money Lherefore becomes less
valuable. As a resulL, more money ls requlred Lo buy goods and servlces. lor more explanaLlon, see quanLlLaLlve
easlng.
10. A#)2"*6 '()"- ( -0#+*B+73 *+(,"#'' ;"*5""3 23'%(*2#3 (3, 73"1$%#61"3*. 8educlng lnflaLlon ofLen causes a
Lemporary rlse ln unemploymenL. 1hls Lradeoff ls Lhe key Lo undersLandlng Lhe shorL-run effecLs of changes ln
Laxes, governmenL spendlng and moneLary pollcy. lor more explanaLlon, see Lhe hllllps curve.