Ten Principles Of Economics

Taken from Mankiw's Principles of Economics.

1. People face trade-offs
   • To get one thing, you have to give up something else.
   • Making decisions requires trading off one goal against another.
2. The cost of something is what you give up to get it
   • Decision-makers have to consider both the obvious and implicit costs of their actions
3. Rational people think at the margin
   • A rational decision-maker takes action if and only if the marginal benefit of the action exceeds the marginal cost.
4. People respond to incentives
   • Behavior changes when costs or benefits change.
5. Trade can make everyone better off
   • Trade allows each person to specialize in the activities he or she does best.
   • By trading with others, people can buy a greater variety of goods or services.
6. Markets are usually a good way to organise economic activity
   • Households and firms that interact in market economies act as if they are guided by an "invisible hand" that leads the market to allocate resources efficiently.
   • The opposite of this is economic activity that is organized by a central planner within the government.
7. Governments can sometimes improve market outcomes
   • When a market fails to allocate resources efficiently, the government can change the outcome through public policy. Examples are regulations against monopolies and pollution.
8. A Country's Standard of Living Depends on Its Ability to Produce Goods and Services
   • Countries whose workers produce a large quantity of goods and services per unit of time enjoy a high standard of living.
   • Similarly, as a nation's productivity grows, so does its average income.
9. Prices Rise When the Government Prints Too Much Money
   • When a government creates large quantities of the nation's money, the value of the money falls.
   • As a result, prices increase, requiring more of the same money to buy goods and services.
10. Society Faces a Short-Run Tradeoff Between Inflation and Unemployment
    • Reducing inflation often causes a temporary rise in unemployment.
    • This tradeoff is crucial for understanding the short-run effects of changes in taxes,government spending and monetary policy.