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E201 Ch01 Ten Principles of Economics
E201 Ch01 Ten Principles of Economics
Economics
PRINCIPLES OF
N. Gregory Mankiw
2011
© 2011 South-Western, a part of Cengage Learning, all rights reserved update
In this chapter,
look for the answers to these questions:
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HOW PEOPLE MAKE DECISIONS
Principle #1: People Face Tradeoffs
Rational people
systematically and purposefully do the best they
can to achieve their objectives.
make decisions by evaluating costs and benefits
of marginal changes – incremental adjustments
to an existing plan.
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HOW PEOPLE MAKE DECISIONS
Principle #4: People Respond to Incentives
Incentive: something that induces a person to
act, i.e. the prospect of a reward or punishment.
Rational people respond to incentives.
Examples:
When petrol prices rise, consumers buy more
cars that use less petrol and stop buying cars
that use a lot of petrol.
When cigarette taxes increase,
teen smoking falls.
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CHAPTER SUMMARY
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