The 10 Principles of Economics

Question 1

Principle 1

Answer 1

People face tradeoffs.

• All decisions involve tradeoffs
• Society: Efficiency vs Equality.
• Efficiency: Get the most from all resources
• Equality: distribute things uniformly

Question 2

Principle 2

Answer 2

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

Question 3

Principle 3

Answer 3

Rational people think at the margin

• Make decisions by evaluating costs and benefits of marginal changes - incremental adjustments to an existing plan

Question 4

Principle 4

Answer 4

People respond to incentives

• Incentive - something induces someone to act.
• Rational people respond to incentives

Question 5

Principle 5

Answer 5

Trade can make everyone better off

• rather than being self-sufficient, people can specialize in producing one good or service and exchange it for other goods
• countries also benefit from trade and specialization

Question 6

Principle 6

Answer 6

Markets are usually a good way to organize economic activity

Question 7

Principle 7

Answer 7

Goverments can sometimes improve market outcomes

• Obamacare (maybe)
• enforcing property rights

Question 8

Principle 8

Answer 8

• A country’s standard of living depends on its ability to produce goods & services
  Productivity - amount of googs & services per unit of labor (per capita)

Question 9

Principle 9

Answer 9

• prices rise when the government prints too much money

Inflation increases general level of price
in the long run, inflation is almost always caused by excessive growth in the quantity of money which causes the value of money to fall

Question 10

Principle 10

Answer 10

• Society faces a short-run tradeoff between inflation and unemployment