Taken from Mankiw's Principles of Economics.
- People face trade-offs
- To get one thing, you have to give up something else.
- Making decisions requires trading off one goal against another.
- The cost of something is what you give up to get it
- Decision-makers have to consider both the obvious and implicit costs of their actions
- Rational people think at the margin
- A rational decision-maker takes action if and only if the marginal benefit of the action exceeds the marginal cost.
- People respond to incentives
- Behavior changes when costs or benefits change.
- Trade can make everyone better off
- Trade allows each person to specialize in the activities he or she does best.
- By trading with others, people can buy a greater variety of goods or services.
- Markets are usually a good way to organise economic activity
- Households and firms that interact in market economies act as if they are guided by an "invisible hand" that leads the market to allocate resources efficiently.
- The opposite of this is economic activity that is organized by a central planner within the government.
- Governments can sometimes improve market outcomes
- When a market fails to allocate resources efficiently, the government can change the outcome through public policy. Examples are regulations against monopolies and pollution.
- A Country's Standard of Living Depends on Its Ability to Produce Goods and Services
Countries whose workers produce a large quantity of goods and services per unit of time enjoy a high standard of living.
- Similarly, as a nation's productivity grows, so does its average income.
- Prices Rise When the Government Prints Too Much Money
When a government creates large quantities of the nation's money, the value of the money falls.
- As a result, prices increase, requiring more of the same money to buy goods and services.
- Society Faces a Short-Run Tradeoff Between Inflation and Unemployment
Reducing inflation often causes a temporary rise in unemployment.
- This tradeoff is crucial for understanding the short-run effects of changes in taxes,government spending and monetary policy.