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Chapter 1
TEN PRINCIPLES OF ECONOMICS
The word economy comes from the Greek word for
one who manages a household.
TEN PRINCIPLES OF ECONOMICS
The management of societys resources (e.g., people, land, buildings,
machinery) is important because resources are scarce.
Scarcity: the limited nature of societys resources
TEN PRINCIPLES OF ECONOMICS
Economics: the study of how society manages its scarce resources
HOW PEOPLE MAKE DECISIONS
Principle #1: People Face Tradeoffs
There is no such thing as a free lunch.
Efficiency: the property of society getting the most it can from
its scarce resources
Equity: the property of distributing economic prosperity fairly
among the members of society
HOW PEOPLE MAKE DECISIONS
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