Professional Documents
Culture Documents
Example:
•Protecting the environment requires resources
that could otherwise be used to produce
consumer goods
HOW PEOPLE MAKE DECISIONS
Principle #1: People Face Tradeoffs
EXMPLES:
•Going to a party the night before the midterm exam leaves
less tine for studying.
EXMPLES:
•Going to a party the night before the midterm exam leaves
less tine for studying.
•Rational people
Systematically & purposefully do the best they can to
achieve their objectives
•Marginal changes
Small incremental adjustments to a plan of action
•Higher price
Buyers - consume less
Sellers - produce more
Example:
• A tax on gasoline, for instance, encourages people to
drive smaller, more fuel-efficient car. It also encourages
people to take public transportation rather than drive.
HOW PEOPLE INTERACT
Principle #5:
Trade Can Make Everyone Better Off
Property rights
Ability of an individual to own and exercise control over
scarce resources.
To promote efficiency
- Avoid market failure (such as externalities and
market power)
To promote equality
- Avoid disparities in economic wellbeing
HOW THE ECONOMY AS A WHOLE WORKS
Principle # 8: A country’s standard of living depends
on its ability to produce goods & services.
Ex.
HOW THE ECONOMY AS A WHOLE WORKS
Principle #9: Prices rise when the
government prints too much money
•Hyperinflation: very high and typically accelerating inflation
HOW THE ECONOMY AS A WHOLE WORKS
Principle #10: Society faces a short-run
tradeoff between inflation and unemployment
• In the short-run (1 – 2 years), many economic policies
push inflation and unemployment in opposite directions.