Modern principles of microeconomics third edition

the opportunity cost of a choice is the value of the opportunities lost

an increase in general level of prices

rewards and penalties that motivate behavior

drug testing
*more testing means approved drugs will have fewer side effect
*Must balance the benefit with other trade offs

people are harmed when approval of a safe drug is delayed

higher testing cost may mean a safe drug is never developed

fame, power reputation, sex, love

*economics is linked to everyday life
*see the invisible hand, understand the world

* markets work well, individuals pursing their own interest also promote social interest
*as if the market is led by "invisible hands"
*when markets don't work well government can change incentives with taxes, subsidies or regulations

*the US Federal Reserve (the Fed) is often call onto combat recession
*there maybe a long lag between a decision and the effects of the decision
*to much money leads to inflation
*not enough money can lead to economic slowdown or recession

*a country's central bank regulates the supply of money
*a sustained increase in the supply of money without an increase in the supply of goods, causes prices to rise
*inflation can make people poorer
*excessive inflation can lead to economic disruption
*unpredictable inflation makes it harder for people to figure out real values of goods services and investment

*economies don't grow at a constant pace
*booms and bust are a normal response to changing economic conditions
*in a downturn, output (GDP) drops and unemployment increases
*government can use fiscal and monetary policy to reduce the swings in output and unemployment
*if used improperly these tools can make the economy more volatile

*the right institutions foster growth
*includes property rights, political stability, honest government, a dependable legal system and competitive and open markets
*institutions provide incentives to save and invest in physical capital, human capital, innovation and efficient organization

*creates wealth
*wealthier economies enable richer and healthier lives

*benefit of trade go beyond benefit of exchange
*trade leads to increased production through specialization
*it allows us to take advantage of economies of scale
*theory of comparative advantage

*we make choices by considering the benefits and cost of a little more or a little less
*"marginal" means one more or one less
*marginal choices include marginal cost, marginal revenue, and marginal tax rates

1. incentive matters
2. good institutions align self interest w/ social interest
3. trade offs are everywhere
4. thinking on the margin
5. power of trade
6. importance of wealth and economic growth
7. institutions matter
8. economic boom and busts cannot be avoided but can be moderated
9. prices rise when the government prints too much money.
10. central banking is a hard job
11 economics is fun