Economics is the study of how society uses its limited resources.

Economics is a social science

that deals with the production, distribution, and consumption of goods and services.

Gregory Mankiw in his Principles of Economics outlines Ten Principles of Economics that we will
replicate here, they are:

1. People face trade-offs:

Making decisions requires trading off one goal against another.
Example:
The parents offer a great meal, and this money could have been used in the cinema.

2. The cost of something is what you give up to get it:

Because people face tradeoffs, making decisions requires comparing the costs and
benefits of alternative course of action.
Example:
You are having a free product, you are wasting time in the line.

3. Rational people think at the margin:

Decisions are not usually in the extreme points. We say in marginal changes.
Example:
 Exercising.
 Education.

4. People respond to incentives:

Because people make decision by comparing costs and benefits, their behavior may
change when the costs or benefits change.
Example:
 Discount to museums on Sundays.

5. Trade can make everyone better off:

Trade allows each person to specialize in the activities he or she does best and to enjoy a
variety of goods and services at lower cost.
Example:
 Colombia in coffee.
 James in soccer.

6. Markets are usually a good way to organize economic activity:

Market economy: Economy that allocates resources through the decentralized decision
of many firms and households as they interact in markets for goods and services.
Example:
 Firms decide what they will produce.
7. Governments can sometimes improve market outcomes:
Two reasons to intervene the economics: efficiency and equity. When there are market
failures.
Externality: The impact of one person’s action on the well-being of another person.
Example:
 Invention.
 Noise from your neighbor.

8. A country's standard of living depends on its ability to produce goods and services:
Citizens of high-income countries have more TV sets, more cars, better nutrition, and better
health care. Almost all variation in countries productivity.

9. Prices rise when the government prints too much money:

 Inflation, an increase in the overall level of prices in the economy.
 Growth of the quantity in the economy.
 When there is too much money, the Price of it is lower.
Example:
 Venezuela

10. Society faces a short-run tradeoff between Inflation and unemployment:

 Inflation for many countries is primordial activity for the economy.
 Why is so hard to control it?
 There is a temporary unemployment rise. Philips curve.
 Prices are slow to adjust. Imagine that the government reduces the quantity of money in
the economy.
- Lower sales.
- Firms have to lay off workers.
 Until the prices adjust.