Key principles of economics
Opportunity cost -- what you sacrificed to get something
factors of production -- the input used to produce goods and services
production possibilities curve -- a curve that shows the possible combinations of products that an economy can produce, given that it's productive resources are fully employed and efficiently used
marginal benefit -- the extra benefit resulting from a small increase in some activity
marginal cost -- the additional costs resulting from a small increase in some activity
market -- an arrangement that allows people to exchange things
nominal value -- the face value of an amount of money
real value -- the value of an amount of money in terms of what it can buy
There are five key principles of economics, the simple, self evident truths that most people readily accept.
- Principal of opportunity cost -- the opportunity cost of something is what you sacrificed to get it
- marginal principal -- increase the level of an activity if it's marginal benefit exceeds its marginal cost; reduce the level of its marginal cost exceeds its marginal benefit. If possible, pick the level at which the marginal benefit equals the marginal cost
- principal of voluntary exchange -- a voluntary exchange between two people that makes both people better off
- principal of diminishing returns -- suppose that output is produced with two or more inputs and that we increase one input while holding the other inputs fixed. Beyond some point, called the point of diminishing returns, output will increase at a decreasing right
- real-nominal principal -- what matters to people is the real value of money or income, its purchasing power, not the face value of money or income
