Ten Principles of Economics
Ten Principles of Economics
WHAT’S NEW IN THE FOURTH EDITION:
The discussion of Principle #3, “Rational people think at the margin,” is more thorough and has a new example. The discussions of Principle #4, “People respond to incentives,” Principle #7, “Governments can sometimes improve market outcomes,” and Principle #10, “Society faces a short-run trade-off between inflation and unemployment” have been clarified. Definitions for the terms “rational,” “incentives,” and “property rights” have been added.
LEARNING OBJECTIVES:
By the end of this chapter, students should understand:
➢ that economics is about the allocation of scarce resources.
➢ that individuals face trade-offs.
➢ the meaning of opportunity cost.
➢ how to use marginal reasoning when making decisions.
➢ how incentives affect people’s behavior.
➢ why trade among people or nations can be good for everyone.
➢ why markets are a good, but not perfect, way to allocate resources.
➢ what determines some trends in the overall economy.
CONTEXT AND PURPOSE:
Chapter 1 is the first chapter in a three-chapter section that serves as the introduction to the text. Chapter 1 introduces ten fundamental principles on which the study of economics is based. In a broad sense, the rest of the text is an elaboration on these ten principles. Chapter 2 will develop how economists approach problems while Chapter 3 will explain how individuals and countries gain from trade. The purpose of Chapter 1 is to lay out ten economic principles that will serve as building blocks for the rest of the text. The ten principles can be grouped into three categories: how people make decisions, how people interact, and how the economy works as a whole. Throughout the text, references will be made repeatedly to these ten principles.
KEY POINTS:
1. The fundamental lessons about individual decisionmaking are that people face trade-offs among alternative goals, that
WHAT’S NEW IN THE FOURTH EDITION:
The discussion of Principle #3, “Rational people think at the margin,” is more thorough and has a new example. The discussions of Principle #4, “People respond to incentives,” Principle #7, “Governments can sometimes improve market outcomes,” and Principle #10, “Society faces a short-run trade-off between inflation and unemployment” have been clarified. Definitions for the terms “rational,” “incentives,” and “property rights” have been added.
LEARNING OBJECTIVES:
By the end of this chapter, students should understand:
➢ that economics is about the allocation of scarce resources.
➢ that individuals face trade-offs.
➢ the meaning of opportunity cost.
➢ how to use marginal reasoning when making decisions.
➢ how incentives affect people’s behavior.
➢ why trade among people or nations can be good for everyone.
➢ why markets are a good, but not perfect, way to allocate resources.
➢ what determines some trends in the overall economy.
CONTEXT AND PURPOSE:
Chapter 1 is the first chapter in a three-chapter section that serves as the introduction to the text. Chapter 1 introduces ten fundamental principles on which the study of economics is based. In a broad sense, the rest of the text is an elaboration on these ten principles. Chapter 2 will develop how economists approach problems while Chapter 3 will explain how individuals and countries gain from trade. The purpose of Chapter 1 is to lay out ten economic principles that will serve as building blocks for the rest of the text. The ten principles can be grouped into three categories: how people make decisions, how people interact, and how the economy works as a whole. Throughout the text, references will be made repeatedly to these ten principles.
KEY POINTS:
1. The fundamental lessons about individual decisionmaking are that people face trade-offs among alternative goals, that