Principles Of Microeconomics

IN THIS CHAPTER YOU WILL . . . 1 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, 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 3 1 TLFeBOOK 2 Ten Principles of Economics 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