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Department of Economics and
Finance |
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PRINCIPLE #1: PEOPLE FACE TRADEOFFS efficiency the property of society getting most it can from its scarce resources equity the property of distributing economic prosperity fairly among the members of society PRINCIPLE #2: THE COST OF SOMETHING IS WHAT YOU GIVE UP TO GET IT opportunity cost whatever must be given up to obtain some item PRINCIPLE #3: RATIONAL PEOPLE THINK AT THE MARGIN marginal changes small incremental adjustments to a plan of action PRINCIPLE #4: PEOPLE RESPOND TO INCENTIVES |
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PRINCIPLE #5: TRADE CAN MAKE EVERYONE BETTER OFF PRINCIPLE #6: MARKETS ARE USUALLY A GOOD WAY TO ORGANIZE ECONOMIC ACTIVITY market economy an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services PRINCIPLE #7: GOVERNMENTS CAN SOMETIMES IMPROVE MARKET OUTCOMES market failure a situation in which a market left on its own fails to allocate resources efficiently externality the impact of one person's actions on the well-being of a bystander market power the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices |
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PRINCIPLE #8: A COUNTRY’S STANDARD OF LIVING DEPENDS ON ITS ABILITY TO PRODUCE GOODS AND SERVICES productivity the quantity of goods and services produced from each hour of a worker's time PRINCIPLE #9: PRICES RISE WHEN THE GOVERNMENT PRINTS TOO MUCH MONEY inflation an increase in the overall level of prices in the economy PRINCIPLE #10: SOCIETY FACES A SHORT-RUN TRADEOFF BETWEEN INFLATION AND UNEMPLOYMENT Phillips curve the short-run tradeoff between inflation and unemployment |
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Problems and Applications: 3, 7, 12, 14 |