Chapter 1 - The Ten Principles of Economics

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The Ten Principles Of Economics
Principle 1: People face trade-offs.

Principle 2: The cost of something is what you give up to get it.

Principle 3: Rational people think at the margin.

Principle 4: People respond to incentives.

Principle 5: Trade can make everyone better off.

Principle 6: Markets are usually a good way to organize economic activity.

Principle 7: Governments can sometimes improve market outcomes.

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 10: Society faces a short-run trade-off between inflation and unemployment.

Vocabulary
Scarcity


 * Definition: The limited nature of society's resources.


 * What It Means:

Economics


 * Definition: The study of how society manages its scarce resources.


 * What It Means:

Efficiency


 * Definition: The property of society getting the most it can from its scarce resources.


 * What It Means:

Equality


 * Definition: The property of distributing economic prosperity uniformly among the members of society.


 * What It Means:

Opportunity Cost


 * Definition: Whatever must be given up to obtain some item.


 * What It Means:

Rational People


 * Definition: People who systematically and purposefully do the best they can to achieve their objectives.


 * What It Means:

Marginal Changes


 * Definition: Small incremental adjustments to a plan of action.


 * What It Means:

Incentive


 * Definition: Something that induces a person to act.


 * What It Means:

Market Economy


 * Definition: An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.


 * What It Means:

Property Rights


 * Definition: The ability of an individual to own and exercise control over scarce resources.


 * What It Means:

Market Failure


 * Definition: A situation in which a market left on its own fails to allocate resources efficiently.


 * What It Means:

Externality


 * Definition: The impact of one person's actions on the well-being of a bystander.


 * What It Means:

Market Power


 * Definition: The ability of a single economic actor (or small group of actors) to have a substantial influence on market prices.


 * What It Means:

Productivity


 * Definition: The quantity of goods and services produced from each unit of labor input.


 * What It Means:

Inflation


 * Definition: An increase in the overall level of prices in the economy.


 * What It Means:

Business Cycle


 * Definition: Fluctuations in economic activity, such as employment and production.


 * What It Means: