Chapter 1 Ten Principles of Economics.pptVIP

A Lecture Presentation in PowerPoint to Accompany Principles of Economics Third Edition by N. Gregory Mankiw Ten Principles of Economics Chapter 1 Economy. . . . . . The word economy comes from a Greek word for “one who manages a household.” A household and an economy face many decisions: Who will work? What goods and how many of them should be produced? What resources should be used in production? At what price should the goods be sold? Society and Scarce Resources: The management of society’s resources is important because resources are scarce. Scarcity . . . . . . means that society has limited resources and therefore cannot produce all the goods and services people wish to have. Economics Economics is the study of how society manages its scarce resources. Economists study. . . How people make decisions. How people interact with each other. The forces and trends that affect the economy as a whole. Ten Principles of Economics 1. People face tradeoffs. 2. The cost of something is what you give up to get it. 3. Rational people think at the margin. 4. People respond to incentives. Ten Principles of Economics 5. Trade can make everyone better off. 6. Markets are usually a good way to organize economic activity. 7. Governments can sometimes improve economic outcomes. Ten Principles of Economics 8. The standard of living depends on a country’s production. 9. Prices rise when the government prints too much money. 10. Society faces a short-run tradeoff between inflation and unemployment. 1. People face tradeoffs. “There is no such thing as a free lunch!” 1. People face tradeoffs. To get one thing, we usually have to give up another thing. Guns v. butter Food v. clothing Leisure time v. work Efficiency v. equity 1. People face tradeoffs. Efficiency means society gets the most that it can from its scarce resources. Equity means the benefits of those resources are distributed fairly among the members of society. 2. The cost of something is what you give