Principles of Economics Chapter 1

Principles of Economics Chapter 1
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This chapter covers how people make decisions, how they interact, and how the economy as a whole works. It delves into principles such as tradeoffs, opportunity cost, rational thinking, and responding to incentives.

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Slide110/22/20141 T T e e n n   P   P r r i i n n c c i i p p l l e e s s   o   o f f E E c c o o n n o o m m i i c c s s Chapter  1 Chapter  1

Slide210/22/20142 Outline Outline  How  People  Make  Decisions  How  People  Make  Decisions  How  People  Interact  How  People  Interact  How  the  Economy  as  a  Whole  Works  How  the  Economy  as  a  Whole  Works

Slide310/22/20143 How  People  Make  Decisions How  People  Make  Decisions  Principle  1.  People  face  tradeoffs  Principle  1.  People  face  tradeoffs  Principle  2.  The  cost  of  something  is  what you  give  up  to  get  it  Principle  2.  The  cost  of  something  is  what you  give  up  to  get  it  Principle  3.  Rational  people  think  at  the margin  Principle  3.  Rational  people  think  at  the margin  Principle  4.  People  respond  to  incentives  Principle  4.  People  respond  to  incentives

Slide410/22/20144 How  People  Interact How  People  Interact  Principle  5.  Trade  can  make  everyone better  off  Principle  5.  Trade  can  make  everyone better  off  Principle  6.  Markets  are  usually  a  good way  to  organize  economic  activity  Principle  6.  Markets  are  usually  a  good way  to  organize  economic  activity  Principle  7.  Governments  can  sometimes improve  market  outcomes  Principle  7.  Governments  can  sometimes improve  market  outcomes

Slide510/22/20145 How  the  Economy  as  a  Whole Works How  the  Economy  as  a  Whole Works  Principle  8.  A  country’s  standard  of  living depends  on  its  ability  to  produce  goods and  services  Principle  8.  A  country’s  standard  of  living depends  on  its  ability  to  produce  goods and  services  Principle  9.  Prices  rise  when  the government  prints  too  much  money  Principle  9.  Prices  rise  when  the government  prints  too  much  money  Principle  10.  Society  faces  a  short-run tradeoff  between  inflation  and unemployment  Principle  10.  Society  faces  a  short-run tradeoff  between  inflation  and unemployment