Mankiw’s 10 Principles of Economics – Flashcards
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To get one thing, you have to give up something else. Making decisions requires trading off one goal against another.
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1. People Face Incentives
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Decision-makers have to consider both the obvious and implicit costs of their actions.
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2. The Cost of Something is What You Give Up to Get It
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A rational decision-maker takes action if and only if the marginal benefit of the action exceeds the marginal cost.
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3. Rational People Think at the Margin
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Behavior changes when costs or benefits change.
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4. People Respond to Incentives
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Trade allows each person to specialize in the activities he or she does best. By trading with others people can buy a greater variety of goods or services.
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5. Trade Can Make Everyone Better Off
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Households and firms that interact in market economies act as if they are guided by an "invisible hand" that leads the market to allocate resources efficiently.
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6. Markets Are Usually a Good Way to Organize Economic Activity
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When a market fails to allocate resources efficiently, the government can change the outcome through public policy
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7. Governments Can Sometimes Improve Market Outcomes
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Countries whose workers produce a large quantity of goods and services per unit of time enjoy a high standard of living. Similarly, as a nation's productivity grows, so does it average income.
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8. A Country's Standard of Living Depends on Its Ability to Produce Goods and Services
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When a government creates large quantities of the nation's money, the value of the money falls. As a result, prices increase, requiring more of the same money to buy goods and services.
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9. Prices Rise When The Government Prints Too Much Money
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Reducing inflation often causes a temporary rise in unemployment. This tradeoff is crucial for understanding the short run effects of changes in taxes, government spending and monetary policy
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10. Society Faces a Short-Run Tradeoff Between Inflation and Unemployment
