ECONOMICS: the society how to manage its limited resources.
How people make decision?
- people face trade-off
the society also face some trade-offs: “guns and butter”, efficiency and equity(when the government tries to cut the economic pie into more equal slices, the pie gets smaller)
- the cost of something is waht you give you up to get it
- rational people think at the margin
- people response to incentives
How people interact?
- trade can make everyone better off
- markets are usually a good way to organize economic activity
- government can sometimes improve market outcomes
How the economy as a whole works?
- a country’s standard of living depends on its ability to produce goods and services
- prices rise when the government prints too much money
- society faces a short-run trade-off between inflation and unemployment
- the scientific method: observation, theory, and more observation
- simplify complex world
- use different assumption in different conditions
- economic models[simplify the reality to improve our understanding of it]
- circular-flow diagram
- the production possibilities frontier
- microeconomics and macroeconomics
as policy adviser
- positive vs normative analysis
- economists in Washington
why economits disagree
- differences in scientific judgement
- differences in values
- perception vs reality
- absolute advantage
- comparative advantage and trade
conclusion: trade can make everyone better off