Ten Principle of Economics
Sunday, 1. March 2009, 20:10:50
The book is pretty easy to understand, and we can learn a lot from this book.
I read the first chapter this morning. It is quite interesting. We can use the theories to explain a lot of economical phenomenons.
So let's review these ten easy but important ten principles.
1 People face tradeoffs, that means exchange.
2 The cost of something is what you give up to get it. Here we can learn an important concept: opportunity cost.
3 Rational people think at the margin. Economists use the term marginal changes to describe the small incremental adjustments to an existing plan of action.
4 People respond to incentives. People make decisions by comparing costs and benefits.
5 Trade can make everybody better off. Not only competitors, but also cooperators. win and win.
6 Markets are usually a good way to organize economic activity. A market economy allocates the resources through the decentralized decisions of many households and firms as they interact in markets for goods and services. The invisible hand from Adam Smith.
7 Governments can sometimes improve market outcomes.
8 A country's living standard depends on its ability to produce good and services. Productivity means the amount of goods and services produced from each hour of a worker's time.
9 Prices rise when the government prints too much money. Inflation is an increase in the overall level of prices in the economy.
10 Society faces a short-run tradeoff between inflation and unemployment. The Phillips curve shows the short-run tradeoff between inflation and unemployment.

