1. 10 Principles of Economics

2. 10 Principles of Economics

3. Who is this?
What was he trying to do?
Why?

4. Scarcity – the limited nature of society’s resources
Economics – the study of society manages its scarce resources

5. Principle 1: People Face Trade-Offs
TANSTAAFL
Some classic trade-offs in the world of economics
Savings vs. Consumption
Guns vs. Butter
Efficiency vs. Equity

6. Principle 2: The Cost of Something is What You Give Up to Get It
Opportunity cost – highest valued foregone alternative
What is the opportunity cost of coming into class today?

7. Principle 3: Rational People Think at the Margin
What do we mean by “margin“?
margin / marginal = the change from doing one more thing
Many times people use the marginal benefit and marginal cost to come to a decision.
CPCC offered 44 ECO sections this semester. Why? How does the marginal benefit and cost play a role?

8. Principle 4: People Respond to Incentives
What examples of an incentive do you face in every day life?
What incentive does the government usually use?

9. Principle 5: Trade Can Make Everyone Better-Off
When people / countries trade, it isn’t “one side loses and the other wins”
It’s often “both sides win”

10. Principle 6: Markets are Usually a Good Way to Organize Activity
Market Based Economies vs Centrally Planned Economies
North vs. South Korea
Markets usually do a better job of allocating society's resources efficiently.

11. Principle 7: Governments Can Sometimes Improve Market Outcomes
Markets are known to fail – thus a market failure.
Standard “market failures”
Market Power
Externalities
In the presence of market failures, the government might be able to improve the market outcome (this is not guaranteed). Appropriate policies must be used.

12. Principle 8: A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services
Productivity – the quantity of goods and services produced from each unit of labor input
Income = Production

13. Principle 9: Prices Rise When the Government Prints Too Much Money
How much is this worth?
About 40 cents

14. Principle 9: Prices Rise When the Government Prints Too Much Money
Printing too much money causes inflation.
Inflation – an increase in the overall level of prices
This results in the value of the currency falling

15. Principle 10: Society Faces a Short-Run Trade-Off between Inflation and Unemployment