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Name: __________________________________________ READING OUTLINE Principles of MicroeconomicsDr. Sauer

Chapter 1: 10 Principles of Economics

Scarcity refers to:

Economics is:

I. How People Make Decisions

A. Principle #1: People face tradeoffs

Efficiency means:

Equity means:

B. Principle #2: The cost of something is what you give up to get it

Opportunity cost is:

C. Principle #3: Rational people think at the margin

Rational people refers to:

A marginal change is:

D. Principle #4: People respond to incentives

An incentive is:

Example: Gasoline prices and incentive effects

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In the News: Incentive Pay

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II. How People Interact

A. Principle #5: Trade can make everyone better off

B. Principle #6: Markets are usually a good way to organize economic activity

A market economy is

C. Principle #7: Governments can sometimes improve market outcomes

Property rights are:

Market failure is:

An externality is:

Market power refers to:

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FYI: Adam Smith and the Invisible Hand

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III. How the Economy as a Whole Works

A. Principle #8: A countrys standard of living depends on its ability to produce goods and services

Productivity is:

B. Principle #9: Prices rise when the government prints too much money

Inflation refers to:

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In the News: Why you should study economics

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C. Principle #10: Society faces a short-run tradeoff between inflation and unemployment

The business cycle refers to: