Markets Organize Economic Activity Markets are defined simply as a place where people make an agreement, settle on a price and then communicate that to the world at large. To boost living standards the policy makers need to raise productivity by ensuring that workers are well educated, have the tools needed to produce goods and services, and have access to the best available technology.
For example, cars benefit drivers, but emissions are also a health concern for people. High productivity implies a high standard of living.
Rational People Think at the Margin Marginal changes are small, incremental changes to an existing plan of action Ex.
Society Faces a Short-Run Tradeoff Between Inflation and Unemployment In the short run, when prices increase, suppliers will want to increase their production of goods and services.
This implies that the cost of this increased equality is a reduction in the efficient use of our resources. Say someone is skilled at giving massages.
Many decisions in life involve incremental decisions: Should I remain in school this semester? Whereas putting a tax on a good,say fuel, can induce people to consume it less which is a negative incentive.
Consumers want to purchase the bundle of goods and services that allow them the greatest level of satisfaction given their incomes and the prices they face.