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Ch. 1 MacroEcon-- Ten Principles of Economics

by: Hannah Shaffer

Ch. 1 MacroEcon-- Ten Principles of Economics ECON 2105

Marketplace > Georgia Gwinnett College > Macro Economics > ECON 2105 > Ch 1 MacroEcon Ten Principles of Economics
Hannah Shaffer

GPA 3.76

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These notes cover the first chapter of Principles of Macroeconomics. Enjoy!
Prin of Macroeconomics
Mark Partridge
Class Notes
TenPrinciplesofEconomics, Macroeconomics
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This 2 page Class Notes was uploaded by Hannah Shaffer on Monday August 22, 2016. The Class Notes belongs to ECON 2105 at Georgia Gwinnett College taught by Mark Partridge in Fall 2016. Since its upload, it has received 8 views. For similar materials see Prin of Macroeconomics in Macro Economics at Georgia Gwinnett College.


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Date Created: 08/22/16
Ch.1 Ten Principles of Economics Economics: the study of how society manages its scarce resources. • Scarcity: the limited nature of society’s resources. ◦ How do we allocate scarce resources? fossil fuels water time all resources are scarce The Principles of Economics: • 1. People Face Trade offs- (no such thing as a free lunch) ◦ Firms Face Tradeoffs- ex. low prices, low wages, low quality. ◦ Society faces tradeoffs- efficiency- maximum benefits from scarce resources equality- benefits are equally distributed • 2. The cost of something is what you give up to get it ◦ opportunity cost- what you give up to get something, but it is measured as the next best option available. • 3. Rational people think at the margin. ◦ rational- using all available information to make decisions. ◦ marginal change- a small incremental adjustment to a plan of action • 4. People respond to incentives ◦ incentive- something that induces a person to act (punishment or reward) • 5. Trade can make everyone better off… specialization is efficient • 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 operate in markets for good and services. free market- no central planner, no taxes, no price controls (does not exist) invisible hand- some force that causes the free market to have the best outcomes… self interest promotes the invisible hand (the market corrects itself) • 7. Government can sometimes improve market outcomes ◦ enforcing property rights: ability of an individual to own the exercise control over scarce resources ◦ government can also prevent market failure- a situation in which a market left on its own fails to allocate resources efficiently • 8. A country’s standard of living depends on its ability to produce goods and services ◦ The richest countries are the most productive and have the highest standard of living ◦ productivity- the quantity of goods and services produced from each unit of input usually in a given period of time • 9. Prices rise when the government prints too much money… leads to inflation ◦ inflation- increase on the overall price level in an economy • 10. Society faces a short-run trade-off between inflation and unemployment ◦ If the government prints extra money, people will have and spend more money increases the demand for goods and services creates more jobs prices will eventually rise (inflation) and jobs decrease


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