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10 Principles of Economics

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How people make decisions:
1. People face Trade Offs. To get one thing we like, we usually have to give up something else we like. Guns or Butter? Efficiency vs Equity. Efficiency means getting the most you can out of scarce resources. Equity means that the benefits of those resources are distributed fairly among members in a society.

2. The cost of something is what you give up to get it= opportunity.
Some times costs are not so obvious. There are hidden costs.

3. Rational people think at the margin. In many situations people make the best decisions by thinking at the margin

Marginal changes mean small incremental adjustments to an existing plan of action. Compare marginal costs to marginal benefits.

4.People respond to incentives. People make decisions by comparing costs and benefits , their behavior may change when the costs and benefits change.
When policymakers fail to consider how their policies affect incentives , they can end up with results they did not intend. The Law of Unintended Consequences.

How people interact:
5. Trade Can Make Everyone Better Off. Economic isolation is not good. When isolated you have to do everything for yourself, even if you are not good at everything. Trade allows each person/country to specialize in the activities they do best. By trading with others, people can buy a greater variety of goods and services at a lower cost.

6. Markets are usually a good way to organize economic activity. Communism works on the premise that central planners in the government are in the best position to guide economic activity. These planners decide what goods and services are produced , how much is produced, and who produces what.
A market economy allocates scare resources through the decentralized decisions of many firms and households as they interact in the market for...

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