1. Ten Principles of Economics

2. What is Economics?
Economics is the study of how the society manages its scarce resources.
Scarcity is the limited nature of society’s resources land, labor, and capital and therefore cannot produce all goods and services the society wishes to have.
Economists study how people make decisions, interact with one another, and analyze forces that affect the economy.

3. Basic Concepts of Economic Analysis
Limited resources—land, labor, capital, and entrepreneurship
Unlimited wants
Need for choice between alternative uses of resources
Efficient use of resources—productive and allocative efficiency

4. Ten Principles of Economics: How do people make decisions?
People face tradeoffs (choices)
Efficiency and equity
Efficiency means getting the most you can from scarce resources.
Equity means benefits of resources are distributed fairly among society
People compare costs and benefits
Opportunity cost
Opportunity Cost is what you give up from one alternative (choice) to get what you want (from another choice)
Cost benefit comparison

5. Ten Principles of Economics: How do people make decisions?
Rational people think at the margin (incremental change)
Marginal Benefits (MB)
Marginal Costs (MC)
MB>MC
People respond to incentives
Decision to choose one good over another occurs when MB > MC.

6. Ten Principles of Economics: How do people interact?
Trade can make every one better off
Competition and specialization
Comparative advantage versus absolute advantage
Markets can organize economic activity
Allocation of resources through decentralized decisions of many firms and house-holds
Interaction between household and business is by an “invisible hand”
Governments can improve market outcomes
Market failure
Externality
Market power

7. Ten Principles of Economics: How does the economy work
Country’s standard of living depends on its productivity
Differences in standard of living between countries is attributable to the productivity of the country
Productivity is the amount of goods and services produced per hour of a worker’s time
Printing of too much money can cause inflation
Inflation is an increase in the overall level of prices in the economy

8. Ten Principles of Economics: How does the economy work
Society faces a short-run trade-off between inflation and unemployment
Phillips Curve
Inflation
Unemployment