Ten Principles of Economics

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Chapter 1

• Ten Principles of Economics

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Economics Studies ...

• SCARCE RESOURCES
• GOODS SERVICES
• that satisfy UNLIMITED WANTS

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1. People face tradeoffs

• Examples?

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

• Opportunity Cost - next best alternative you give
  up to get what you want

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Opportunity Cost of Watching a T.V. Movie

• 1 Watch TV Movie
• 2 Do Wash
• 3 Polish Shoes.
• 4 Polish Doorknobs
• 5 Roll Dice for six 6s

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3. Rational People Think at the Margin

• Marginal changes are small adjustments.
• Examples?

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4. People Respond to Incentives

• Example study an extra hour Quiz vs
  Final Exam?

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5. Trade Can Make Everyone Better Off

• Examples?
• Pin Factory

Trade allows specialization
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6. Markets Often Good Way to Organize Economic
Activity

• Market determines what, how for whom to
  produce.
• Brazilian Frost
• invisible hand.

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7. Governments Sometimes Improve Market
Outcomes

• Market Failure
• (Ex Pollution)
• (Ex Monopoly)
• Government promotes
• Efficiency
• Equity

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8. Standard of living depends on a countrys
production.

• Standard of Living - income per capita
• depends on Productivity (output per worker)

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9. Prices Rise When Government Prints Too Much
Money

• Inflation an increase in price level
• Caused by growth in quantity of money.

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10. Short-Run Tradeoff Between Inflation and
Unemployment
Inflation
Unemployment

• Short-Run Tradeoff.

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Three Big Questions What? How? For Whom?

• Tradition
• Command/Socialist
• Market/Capitalist
• Mixed Economy (Ex USA)

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Red Flame Group 1
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Green Falls Group 2
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Yellow Eclipse Group 3
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Violet Storm Group 4
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Indigo Bay Group 5
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Hi Lo Close
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Were the Crusty Critters and were here to show
the financial page
Ticker Symbol
Y E I L D
52 Week High Low
Dividend
PE Ratio
Yeah!