1. Chapter 1: An Economic Way of Thinking

2. So What is Economics??
Economics is how people decide to use their limited resources for their unlimited wants
Basically – getting the most with what you have
It is NOT just about money
Economics deals with things of any VALUE, not just monetary value
Everyone has different values and different wants
It is NOT full of mathematic equations
It is more a conceptual study than mathematical
There is some math involved but it is not the focus

3. Wrote The Wealth of Nations in 1776
The Start of Economics
Started by Adam Smith
Wrote The Wealth of Nations in 1776
Explained that companies were better off when they compete against one another
Not competition by war, but by production/selling of goods
Said people needed more than food, shelter, clothing
The more of these “things” they have – the richer they are
Led to studies of how to control/run an economy

4. What is an economy of a country?
The Start of Economics
What is an economy of a country?
An economy deals with how a country or government uses or utilizes its limited resource to get the most out in production and consumption of these goods.

5. Section 3: What Seven Principles guide an economic way of thinking?
Scarcity Forces Tradeoffs
Cost v. Benefit
Thinking in the Margin
Incentives Matter
Trade Makes People Better
Markets Coordinate Trade
Future Consequences Count

6. Principle 1: Scarcity Forces Tradeoffs
Main Idea: Although our desire for things is unlimited, the resources needed to fulfill our desires are scarce.
Scarcity –
Tradeoff –

7. Principle 1: Scarcity Forces Tradeoffs
Also known as the no free lunch principle
“TINSTAAFL”
remember the Seinfeld video?
No Free Lunch

8. Potential Graph
If we look at the chart, we see that the further away a person works from their home, the more money they make.
How much TIME would you be willing to tradeoff for money??

9. Principle 2: Cost v. Benefit
Main Idea: Individuals make choices based on the expected costs and benefits
Cost–
Benefit –

10. Cost-Benefit Analysis

11. Principle 2: Cost v. Benefit
Cost-Benefit analysis of:
Driving vs. flying for vacation
New car vs. used car

12. Principle 3: Thinking at the Margin
Main Idea: Most decisions we make involve choices about a little more or a little less of something rather than a whole change
Margin-
Marginal cost –
Marginal benefit-

13. Principle 3: Thinking at the Margin
You and your friend have organized a trip around all six cities where your favorite band is performing. But then the band announces that it is extending its tour to one more city. The added concert is not in your plans, but you would really hate to miss it. Here is a decision you must make at the margin. Is the marginal benefit of attending the seventh concert worth the added costs in time and money?

14. Principle 4: Incentives Matter
Main Idea: People respond to incentives in a predictable way
Incentive–
Positive Incentives –
Negative Incentives –

15. Principle 4: Incentives Matter
What are examples of positive and negative incentives that you can think of?
Positive Incentives:
Negative Incentives:

16. Principle 5: Trade makes people better off
Main Idea: by focusing on what we do well and then trading with others, we will end up with more and better choices than by trying to do everything for ourselves.

17. Principle 5: Trade makes people better off
It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy. The taylor [tailor] does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a taylor.
—Adam Smith, The Wealth of Nations, 1776

18. Principle 6: Markets coordinate trade
Main Idea: the idea that markets are usually the best way to coordinate exchanges between buyers and sellers
Market –
Markets
Examples:

19. Principle 7: Future Consequences Count
Main Idea: Even though most people make decisions that will effect the immediate cost and benefit, this principle reinforces that decisions made have future implications

20. Principle 7: Future Consequences Count
The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy.
—Henry Hazlitt, Economics in One Lesson, 1979

21. Principle 7: Future Consequences Count
Law of unintended consequences-
Can you think of a local example?