·How people make decisions

1.people face tradeoffs.

2.the cost of sth is what u give up to get it.

e.g.leisure time vs. work(earnings)

--opportunity cost(失去的機(jī)會(huì))

3.rational people think at the margin.(incromental change)

marginal cost vs. average cost

marginal benefit vs. total benefit

4.people respond to incentives.

-marginal changes in costs or benefits motivate people to respond.

-the decision to choose one alternative over another occurs when that alternative’s marginal benefits exceed its marginal costs.

·How people interact

1.trade can make everyone better.

-people gain from their abillity to trade with another.

-competition results in gains from trading.

-trade allows people to specialize in what they do best.

2.markets are usually a good way to organize economic activity.

-in a market economy, householids decide what to buy and who to work for.

-firms decide who to hire and what to produce.

-Adam Smith made the observation that households and firms interacting in markets act as if guided by an "invisible hand". (price)

3.governments can sometimes improve market outcomes.

-market failure occurs when the market fails to allocate resources efficiently.(externality/market power)

-fair distribution in prosperity

·How the economic as a whole works

1.the standard of living depends on a country's production.

-productivity(per hour and per worker)

2.prices rise when the governments prints too much money.(貨幣)

-inflation: an increase in the overall level of prices in the economy

3.society faces a short-run tradeoff between inflation and unemployment.

Thinking as an economist

·economics as science

observation, theory,and more observation(experiences, investigation, media and research literature)

e.g.Coase: many transactions are within the firms.

-the scientific method:

a.theoritical analysis(logic)

b.empirical analysis(evidence)--analyse data to test the theories

·economics as policy