1. Chapter 1: Ten Principles of Economics

2. What is Economics? Study of how society manages its scarce resources Therefore, basic economic concept is Scarcity

3. Brainstorm What are 5 things that you would like more of?

4. Principle #1 People Face Trade-offs TINSTAAFL: There Is No Such Thing As A Free Lunch -What in life is truly free? Making decisions requires trading one goal for another Efficiency vs. Equity: Maximum benefits to society vs. “fairness”

5. Principle #2 The Cost of Something is What You Give Up to Get It Making decisions causes people to consider the costs & benefits of an action Opportunity Cost: Whatever must be given up in order to obtain some item Do you go to college?

6. Principle #3 Rational People Think at the Margin Are people rational? HUGE CONCEPT: Marginal Benefit vs. Marginal Cost Example: Diamonds vs. Water Airlines

7. Principle #4 People Respond to Incentives Incentives change people’s behavior Must look at direct & indirect effects of incentives/policies Ex: Incentive effects of Gas Prices Rising

8. Is Trade Good for the U.S.? Should the U.S. trade more or less than we do? Why?

9. Principle #5 Trade Can Make Everyone Better Off Trade doesn’t have to result in winners & losers – both can win! Trade allows for specialization in what you do best

10. Principle #6 Markets Are Usually a Good Way to Organize Economic Activity Many countries have abandoned centrally planned economies to develop markets Market economy: an economy that allocates resources through decisions of many firms and households Invisible Hand guides the economy when everyone does what is best for them

11. Good Gov’t, Bad Gov’t How much/how little should the government get involved in the economy? In what situations does it help to have gov’t intervention?

12. Principle #7 Governments Can Sometimes Improve Market Outcomes 2 Biggest Reasons for Intervention: Efficiency & Equality Most useful when there is Market Failure Ex.: Externalities & Market Power This concept produces big disagreements

13. Principle #8 A Country’s Standard of Living Depends on Its Ability to Produce Goods & Services Huge differences in living standards around the world Explained by differences in productivity Broken window fallacy?

14. Principle #9 Prices Rise When the Government Prints Too Much Money Inflation – increase in overall level of prices in the economy Examples?

15. Principle #10 Society Faces a Short-Run Trade-off Between Inflation & Unemployment In short run, increase in $ leads to lower unemployment but higher prices Trade-off leads to discussions of business cycles, fiscal & monetary policy