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.

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