THE PRINCIPLES OF ECONOMICS

1.      People Face Tradeoffs

o    To get one thing, we usually have to give up something else

§  Ex. Leisure time vs. work

2.      The Cost of Something is What You Give Up to Get It

o    Opportunity cost is the second best alternative foregone.

§  Ex. The opportunity cost of going to college is the money you could have earned if you used that time to work.

3.      Rational People Think at the Margin

o    Marginal changes are small, incremental changes to an existing plan of action

§  Ex. Deciding to produce one more pencil or not

o    People will only take action of the marginal benefit exceed the marginal cost

4.      People Respond to Incentives

o    Incentive is something that causes a person to act. Because people use cost and benefit analysis, they also respond to incentives

§  Ex. Higher taxes on cigarettes to prevent smoking

5.      Trade Can Make Everyone Better Off

o    Trade allows countries to specialize according to their comparative advantages and to enjoy a greater variety of goods and services

6.      Markets Are Usually a Good Way to Organize Economic Activity

o    Adam Smith made the observation that when households and firms interact in markets guided by the invisible hand, they will produce the most surpluses for the economy

7.      Governments Can Sometimes Improve Economic Outcomes

o    Market failures occur when the market fails to allocate resources efficiently. Governments can step in and intervene in order to promote efficiency and equity.

8.      The Standard of Living Depends on a Country's Production

o    The more goods and services produced in a country, the higher the standard of living. As people consume a larger quantity of goods and services, their standard of living will increase

9.      Prices Rise When the Government Prints Too Much Money

o    When too much money is floating in the economy, there will be higher demand for goods and services. This will cause firms to increase their price in the long run causing inflation.

10. Society Faces a Short-Run Tradeoff Between Inflation and Unemployment

o    In the short run, when prices increase, suppliers will want to increase their production of goods and services. In order to achieve this, they need to hire more workers to produce those goods and services. More hiring means lower unemployment while there is still inflation. However, this is not the case in the long-run.

A trade-off (or tradeoff) is a situation that involves losing one quality or aspect of something in return for gaining another quality or aspect. More colloquially, if one thing increases, some other thing must decrease. Trade-offs can occur for many reasons, including simple physics (e.g., into a given amount of space, you can fit many small objects or fewer large objects). The idea of a trade-off often implies a decision to be made with full comprehension of both the upside and downside of a particular choice, such as when a person decides whether to invest in stocks (riskier, but greater potential return) versus bonds (generally safer, but lower potential returns). The term is also used widely in an evolutionary context, in which case natural selection and sexual selection act as the ultimate "decision-makers".

Trade-offs in economics

In economics the term is expressed as opportunity cost, referring to the most preferred alternative given up. A trade-off, then, involves a sacrifice that must be made to obtain a certain product, service or experience, rather than others that could be made or obtained using the same required resources. For a person going to a basketball game, their opportunity cost is the money and time expended, as compared with the alternative of watching a particular television program at home. Many factors affect the trade-off environment within a particular country, including availability of raw materials, a skilled labor force, machinery for producing a product, technology and capital, market rate to produce that product on reasonable time scale, and so forth.

In computer science, trade-offs are viewed as a tool of the trade. A program can often run faster if it uses more memory (a space-time tradeoff). Consider the following examples:

• By compressing an image, you can reduce transmission time/costs at the expense of CPU time to perform the compression and decompression. (Another aspect of this trade-off is the loss in image quality, which is more apparent when the image is viewed at larger sizes.)
• By using a lookup table, you may be able to reduce CPU time at the expense of space to      hold the table, e.g. to determine the parity of a byte you can either look at each bit individually (using shifts and masks), or use a 256-entry table giving the parity for each possible bit-pattern, or combine the upper and lower nibbles and use a 16-entry table.
• For some situations (e.g. string manipulation), a compiler may be able to use inline code for greater speed, or call run-time routines for reduced memory; the user of the compiler should be able to indicate whether speed or space is more important.