1. The fundamental lessons about individual decisionmaking are that people face trade-offs among alternative goals, that the cost of any action is measured in terms of forgone opportunities, that rational people make decisions by comparing marginal costs and marginal benefits, and that people change their behavior in response to the incentives they face.
2. The fundamental lessons about interactions among people are that trade can be mutually beneficial, that markets are usually a good way of coordinating trades among people, and that the government can potentially improve market outcomes if there is some sort of market failure or if the market outcome is inequitable.
3. The fundamental lessons about the economy as a whole are that productivity is the ultimate source of living standards, that money growth is the ultimate source of inflation, and that society faces a short-run trade-off between inflation and unemployment.
Economics is a subject that everyone confronts in their daily lives. Think about the amount of time you spend thinking about economic issues: prices, buying decisions, use of your time, etc.
A. The word “economy” comes from the Greek word oikonomos meaning “one who manages a household.”
B. This makes some sense because in the economy we are faced with many decisions (just as a household is).
C. Fundamental economic problem: resources are scarce.
Please remember that in some ways, studying Economics is like studying a foreign language. Part of learning economics is understanding new vocabulary. Economists generally use very precise (and sometimes different) definitions for words that are commonly used outside of the economics discipline. For this reason, please read all definitions very carefully.
D. Definition of scarcity: the limited nature of society’s resources.
E. Definition of economics: the study of how society...