chapter1 Ten principles of economics

Scarcity: the limited nature of society’s resources

Economics: the study of how society manages its scarce resources

How People Make Decisions

PRINCIPLE 1: People Face Trade-offs

Efficiency: the property of society getting the most it can from its scarce resources

Equality: the property of distributing economic prosperity uniformly among society’s members

PRINCIPLE 2: The Cost of Something Is What You Give Up to Get It

Opportunity cost: whatever must be given up to obtain some item.

PRINCIPLE 3: Rational People Think at the Margin

Rational people: people who systematically and purposefully do the best they can to achieve their objectives

Marginal changes: a small incremental adjustments to a plan of action. (Marginal decision making can explain some otherwise puzzling phenomena)

PRINCIPLE 4: People Respond to Incentives

Incentive: something that induces a person to act

A higher price in a market provides an incentive for buyers to consume less and an incentive for sellers to produce more.

How People Interact

PRINCIPLE 5: Trade Can Make Everyone Better Off

The Chinese, as well as the French, Egyptians, and Brazilians, are as much our partners in the world economy as they are our competitors.

PRINCIPLE 6: Markets Are Usually A Good Way to Organize Economic Activity

Market economy: an economy that allocates resources through the decentralized decisions of many households and firms as they interact in markets for goods and services.

An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith

“Invisible hand”(Price): Households and firms interacting in markets act as if they are guided by an “invisible hand” that leads them to desirable market outcomes

PRINCIPLE 7: Governments Can Sometimes Improve Market Outcomes

Property rights: the ability of an individual to own and exercise control over scarce resources.

Market failure: a situation in which a market left on its own fails to allocate resources efficiently

The real reasons result in market failure

Externalities: the uncompensated impact of one person’s actions on the well-being of a bystander.

Market power: the ability of a single economic actor (or small group of actors) to have a substantial influence on market price (e.g. monopoly)

How the Economy as a Whole Works

PRINCIPLE 8: A Country’s Standard of Living Depends on Its Ability to Produce Goods & Services

Productivity: the amount of goods and services produced from each unit of labor input

PRINCIPLE 9: Prices Rise When the Government Prints Too Much Money

Inflation: an increase in the overall level of prices in the economy.

PRINCIPLE 10: Society Faces a Short-run Tradeoff Between Inflation and Unemployment

Increasing the amount of money in the economy stimulates the overall level of spending and thus the demand for goods and services, and the higher demand may over time cause firms to raise their prices, but in the meantime, it also encourages them to hire more workers and produce a larger quantity of goods and services, here we derive a line: more hiring means lower unemployment.
(Over a period of a year or two, many economic policies push inflation and unemployment in opposite directions.)

Question: Why does a increase in the amount of money stimulate an unemployment rate decreasing?

When the amount of money increases, companies can more easily obtain loans and financing, allowing them to expand their production scale, which in turn requires more workers to meet the production demand.

An increase in the quantity of money can also lead to inflation, which in turn causes wage levels to rise as workers require more money to purchase the same quantity of goods and services. This, in turn, compels companies to pay higher wages to attract and retain workers, thereby increasing employment.

Furthermore, an increase in the quantity of money stimulates economic growth and consumption, which leads to businesses requiring more workers for the production and sale of goods and services.

Business cycle: fluctuations in economic activity, such as employment and production.

Tips
真正的进步来自工作岗位的消灭
生产率是生活水平的最终根源
货币量的增长是通货膨胀的最终根源
社会面临着通货膨胀与失业之间的短期权衡取舍
食物产生外部性的几率最小