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| The study of how society manages its scarces resources. |
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| Principle One: People Face Trade-Offs |
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Definition
We have to trade one good for another.
ex. time and money |
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| The property of society getting the most it can from its scarce resources. |
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| The property of distributing the economic propserity uniformly among members of society. |
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| Principle Two: The Cost of Something Is What You Give Up To Get It |
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| Comparing costs and benefits of alternative courses of action. |
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| Whatever must be given up to obtain some item |
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| Principle Three: Rational People Think At The Margin |
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| Decisions made based on small adjustments. |
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| People who systematically and purposefully achieve their objectives |
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| Small incremental adjustments to a plan of action |
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| Principle Four: People Respond to Incentives |
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| Rational people make decisios by comparing costs and benefits, they respond to incentives. Incentives can change people's behavior. |
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| Something that induces a person to act |
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| Principle Five: Trade Can Make Everyone Better Off |
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Definition
- Competition is better than isolationism
- Trade allows for a country or person to specialize in goods/services rather than producing all necesities. |
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| Principle Six: Markets are Usually a Good Way to Prganize Economic Activity |
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| Rather than government organization of economic activity. |
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| An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services. |
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| Directs prices and economic activity. Can be adjusted to guide buyers/sellers to mazimize the well-being of society. |
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| Priniciple Seven: Fovernments Can Sometimes Improve Market Outcomes |
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Definition
| Government needs to protect property that is essential to a market through rules and laws. |
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Definition
| The ability of an individual to own and exercise control over scarce resources |
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| A situation in which a market left on its own fails to allowcate resources efficiently |
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| The impact of one person's actions on the well-being of a bystander |
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| Ability of a sinle economic actor (or small group of actors) to have a substantial influence on market prices. |
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