PAGE\*MERGEFORMAT2Chapter1/TenPrinciplesofEconomicsChapter1/TenPrinciplesofEconomicsPAGE\*MERGEFORMAT5PAGE\*MERGEFORMAT1SOLUTIONSTOTEXTPROBLEMS:QuickQuizzes1.Thefourprinciplesofeconomicdecisionmakingare:(1)peoplefacetradeoffs;(2)thecostofsomethingiswhatyougiveuptogetit;(3)rationalpeoplethinkatthemargin;and(4)peoplerespondtoincentives.Peoplefacetradeoffsbecausetogetonethingthattheylike,theyusuallyhavetogiveupanotherthingthattheylike.Thecostofsomethingiswhatyougiveuptogetit,notjustintermsofmonetarycostsbutallopportunitycosts.Rationalpeoplethinkatthemarginbytakinganactionifandonlyifthemarginalbenefitsexceedthemarginalcosts.Peoplerespondtoincentivesbecauseastheycomparebenefitstocosts,achangeinincentivesmaycausetheirbehaviortochange.2.Thethreeprinciplesconcerningeconomicinteractionsare:(1)tradecanmakeeveryonebetteroff;(2)marketsareusuallyagoodwaytoorganizeeconomicactivity;and(3)governmentscansometimesimprovemarketoutcomes.Tradecanmakeeveryonebetteroffbecauseitallowscountriestospecializeinwhattheydobestandtoenjoyawidervarietyofgoodsandservices.Marketsareusuallyagoodwaytoorganizeeconomicactivitybecausetheinvisiblehandleadsmarketstodesirableoutcomes.Governmentscansometimesimprovemarketoutcomesbecausesometimesmarketsfailtoallocateresourcesefficientlybecauseofanexternalityormarketpower.3.Thethreeprinciplesthatdescribehowtheeconomyasawholeworksare:(1)acountry’sstandardoflivingdependsonitsabilitytoproducegoodsandservices;(2)pricesrisewhenthegovernmentprintstoomuchmoney;and(3)societyfacesashort-runtradeoffbetweeninflationandunemployment.Acountry’sstandardoflivingdependsonitsabilitytoproducegoodsandservices,whichinturndependsonitsproductivity,whichisafunctionoftheeducationofworkersandtheaccessworkershavetothenecessarytoolsandtechnology.Pricesrisewhenthegovernmentprintstoomuchmoneybecausemoremoneyincirculationreducesthevalueofmoney,causinginflation.Societyfacesashort-runtradeoffbetweeninflationandunemploymentthatisonlytemporaryandpolicymakershavesomeabilit