Page 17 - The Principle of Economics

monetary and fiscal policy are potentially so powerful, how policymakers should use these instruments to control the economy, if at all, is a subject of continuing debate.
QUICK QUIZ: List and briefly explain the three principles that describe how the economy as a whole works.
CONCLUSION
You now have a taste of what economics is all about. In the coming chapters we will develop many specific insights about people, markets, and economies. Mas- tering these insights will take some effort, but it is not an overwhelming task. The field of economics is based on a few basic ideas that can be applied in many dif- ferent situations.
Throughout this book we will refer back to the Ten Principles of Economics highlighted in this chapter and summarized in Table 1-1. Whenever we do so, a building-blocks icon will be displayed in the margin, as it is now. But even when that icon is absent, you should keep these building blocks in mind. Even the most sophisticated economic analysis is built using the ten principles introduced here.
CHAPTER 1 TEN PRINCIPLES OF ECONOMICS 15
HOW PEOPLE MAKE DECISIONS
HOW PEOPLE INTERACT
HOW THE ECONOMY AS A WHOLE WORKS
#1: People Face Tradeoffs
#2: The Cost of Something Is What You Give Up to Get It
#3: Rational People Think at the Margin
#4: People Respond to Incentives
#5: Trade Can Make Everyone Better Off
#6: Markets Are Usually a Good Way to Organize Economic Activity
#7: Governments Can Sometimes Improve Market Outcomes
#8: A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services
#9: Prices Rise When the Government Prints Too Much Money
#10: Society Faces a Short-Run Tradeoff between Inflation and Unemployment
Table 1-1
TEN PRINCIPLES OF ECONOMICS