chapter 4 ten principles of economics(I).pptVIP

Chapter Four Ten Principles of economics First task: Pair work, face to face with your partner. Why economy is so important in our world or life? Ten Principles of Economics Part one : How people make decisions An economy is just a group of people interacting with one another as they go about their live. Principle one: people face tradeoff To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another. The tradeoff society faces is between efficiency and equity. Efficiency means that society is getting the most it can from its scarce resources. Equity means that the benefits of those resources are distributes fairly among society’s members. Principle 2: The cost of sth is what you give up to get it (opportunity cost). Because people face tradeoff, making decisions requires comparing the costs and benefits of alternative courses of action. However, the cost of some action is not as obvious as it might first appear. Principle 3: rational people think at the margin Many decisions in life involve making small incremental adjustments to an existing plan of action. Economists call these marginal changes. In many situations, people will make the best decisions by thinking at the margin. Individuals and firms can make better decisions by thinking at the margin. A rational decisionmaker takes an action if and only if the marginal benefit of the action exceeds the marginal cost. Principle 4: people respond to incentives Because people make decisions by comparing cost and benefits, their behavior may change when the costs or benefits change. People respond to incentive. Many of the incentives that economists study are more straightforward than those of the auto-safety laws. No one is surprised that a tax on apples causes people to buy fewer apples. Part 2:How people interact Principle 5: Trade can make everyone better off Trade allows countries to specialize in what they do bes