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Principles of Economics

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IN THIS CHAPTER
YOU WILL . . .

Learn that
economics is about
the allocation of
scarce resources

Examine some of the
tradeof fs that people
face

Learn the meaning of
oppor tunity cost

See how to use
marginal reasoning
when making
decisions

TEN
OF

PRINCIPLES

Discuss how
incentives af fect
people’s behavior

ECONOMICS

The word economy comes from the Greek word for “one who manages a household.” At first, this origin might seem peculiar. But, in fact, households and
economies have much in common.
A household faces many decisions. It must decide which members of the
household do which tasks and what each member gets in return: Who cooks dinner? Who does the laundry? Who gets the extra dessert at dinner? Who gets to
choose what TV show to watch? In short, the household must allocate its scarce resources among its various members, taking into account each member’s abilities,
efforts, and desires.
Like a household, a society faces many decisions. A society must decide what
jobs will be done and who will do them. It needs some people to grow food, other
people to make clothing, and still others to design computer software. Once society has allocated people (as well as land, buildings, and machines) to various jobs,
3

Consider why trade
among people or
nations can be good
for everyone

Discuss why markets
are a good, but not
per fect, way to
allocate resources

Learn what
determines some
trends in the overall
economy

4

PA R T O N E

INTRODUCTION

scarcity
the limited nature of society’s
resources
economics
the study of how society manages its
scarce resources

it must also allocate the output of goods and services that they produce. It must
decide who will eat caviar and who will eat potatoes. It must decide who will
drive a Porsche and who will take the bus.
The management of society’s resources is important because resources are
scarce. Scarcity means that society has limited resources and therefore cannot produce all the goods and services people wish to have. Just as a household cannot
give every member everything he or she wants, a society cannot give every individual the highest standard of living to which he or she might aspire.
Economics is the study of how society manages its scarce resources. In most
societies, resources are allocated not by a single central planner but through the
combined actions of millions of households and firms. Economists therefore study
how people make decisions: how much they work, what they buy, how much they
save, an...
IN THIS CHAPTER
YOU WILL . . .
Discuss how
incentives affect
people’s behavior
Learn the meaning of
opportunity cost
Learn that
economics is about
the allocation of
scarce resources
Examine some of the
tradeoffs that people
face
See how to use
marginal reasoning
when making
decisions
The word economy comes from the Greek word for “one who manages a house-
hold.” At first, this origin might seem peculiar. But, in fact, households and
economies have much in common.
A household faces many decisions. It must decide which members of the
household do which tasks and what each member gets in return: Who cooks din-
ner? Who does the laundry? Who gets the extra dessert at dinner? Who gets to
choose what TV show to watch? In short, the household must allocate its scarce re-
sources among its various members, taking into account each member’s abilities,
efforts, and desires.
Like a household, a society faces many decisions. A society must decide what
jobs will be done and who will do them. It needs some people to grow food, other
people to make clothing, and still others to design computer software. Once soci-
ety has allocated people (as well as land, buildings, and machines) to various jobs,
TEN PRINCIPLES
OF ECONOMICS
3
Consider why trade
among people or
nations can be good
for everyone
Discuss why markets
are a good, but not
perfect, way to
allocate resources
Learn what
determines some
trends in the overall
economy
Principles of Economics - Trang 2
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