Scribd Logo
Upload

Welcome to Scribd!

  • 67 views

    Ch01 Ten Priciples of Economics

    Uploaded by

    Monal Patel
    1) Economics involves managing scarce resources and making tradeoffs between alternatives. People respond rationally to incentives by weighing marginal costs and benefits. 2) Trade and markets are generally effective ways of allocating resources, though governments sometimes need to intervene for issues like externalities or market power. 3) A nation's productivity and ability to produce goods and services determines its standard of living, while inflation results from increasing the money supply beyond economic growth.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd

    Ch01 Ten Priciples of Economics

    Uploaded by

    Monal Patel
    67 views27 pages
    1) Economics involves managing scarce resources and making tradeoffs between alternatives. People respond rationally to incentives by weighing marginal costs and benefits. 2) Trade and markets are generally effective ways of allocating resources, though governments sometimes need to intervene for issues like externalities or market power. 3) A nation's productivity and ability to produce goods and services determines its standard of living, while inflation results from increasing the money supply beyond economic growth.

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PPT, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    1) Economics involves managing scarce resources and making tradeoffs between alternatives. People respond rationally to incentives by weighing marginal costs and benefits. 2) Trade and markets are generally effective ways of allocating resources, though governments sometimes need to intervene for issues like externalities or market power. 3) A nation's productivity and ability to produce goods and services determines its standard of living, while inflation results from increasing the money supply beyond economic growth.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    67 views27 pages

    Ch01 Ten Priciples of Economics

    Uploaded by

    Monal Patel
    1) Economics involves managing scarce resources and making tradeoffs between alternatives. People respond rationally to incentives by weighing marginal costs and benefits. 2) Trade and markets are generally effective ways of allocating resources, though governments sometimes need to intervene for issues like externalities or market power. 3) A nation's productivity and ability to produce goods and services determines its standard of living, while inflation results from increasing the money supply beyond economic growth.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    You are on page 1of 27

    Ten Principles of Economics

    SARFARAZ N PATHAN

    In this chapter you will


    

     

    Learn that economics is about the allocation of scarce resources. Examine some of the tradeoffs that people face. Learn the meaning of opportunity cost. See how to use marginal reasoning when making decisions.

    In this chapter you will


     

    Discuss how incentives affect people s behaviour. behaviour. Consider why trade among people or nations can be good for everyone. Discuss why markets are a good, but not perfect, way to allocate resources. Learn what determines some trends in the overall economy.

    The Word Economy Comes From


    the Greek word for one who manages a household. household.

    TEN PRINCIPLES OF ECONOMICS


    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?

    TEN PRINCIPLES OF ECONOMICS


    Society and Scarce Resources: The management of societys 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.

    Chapter 1: Page 6

    TEN PRINCIPLES OF ECONOMICS


     Economics is the study of how society manages its scarce resources.  Economists study how people make decisions:  How much they work  What they buy  How much they save  How they invest their savings
    Chapter 1: Page 7

    TEN PRINCIPLES OF ECONOMICS


     Economists also study how people interact such as buyers and sellers.  Price determination.  Economists also analyze forces and trends that affect the economy as a whole.  Growth in average income  The rate of price increase.

    Chapter 1: Page 8

    HOW PEOPLE MAKE DECISIONS


     There is no mystery to what an economy is.  Its a group people interacting with one another as they go about their lives.  We start the study of economics with four principles of individual decision making:
     People face tradeoffs  The cost of something is what you give up to get it.  Rational people think at the margin.  People respond to incentives. Chapter 1:

    Page 9

    Principle 1: People Face Tradeoffs


    There is no such thing as a free lunch  To get something we like we usually have to give up something we dont like.  A student and her time:  Studying vs. napping or cycling.  Societys tradeoffs:  Guns vs. Butter  Clean environment and higher income
    Chapter 1: Page 10

    Principle 1: People Face Tradeoffs


     Societys tradeoffs (contd):  Efficiency vs. Equity  Efficiency: Society getting the most it can from its scarce resources.  Equity: Distributing economic prosperity fairly among the members of society.

    Chapter 1: Page 11

    Principle 2: The Cost of Something is what You Give Up


     Making decisions requires comparing the costs and benefits of alternative courses of actions.
     To go to university or not to go?

     Opportunity cost: Whatever must be given up to obtain some item.

    Chapter 1: Page 12

    Principle 3: Rational People Think at the Margin


     Marginal changes: Small incremental adjustments to marginal changes.  Individuals and firms can make better decisions by thinking at the margin.  By comparing the marginal benefits (MB) with the associated marginal costs (MC) of a decision.

    Chapter 1: Page 13

    Principle 4: People Respond to Incentive


    Marginal changes in costs or benefits motivate people to respond. When the price of apples rise The decision to choose one alternative over another occurs when that alternatives marginal benefits exceed its marginal costs!

    Chapter 1: Page 14

    HOW PEOPLE INTERACT


    The first four principles discussed how individuals make decisions. The next three principles concern how people interact with one another.

    Chapter 1: Page 15

    Principle 5: Trade can Make Everyone Better Off


    People gain from their ability to trade with one another. Competition results in gains from trading. Trade allows people to specialize in what they do best.

    Chapter 1: Page 16

    Principle 6: Markets are Usually a Good Way to Organize Economic Activity


     Market economy: An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.  Firms decide whom to hire and what to make.  Households decide which firms to work for and what to buy with their incomes.

    Chapter 1: Page 17

    CONTINUE
     Market economy: An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.  Firms decide whom to hire and what to make.  Households decide which firms to work for and what to buy with their incomes.
    Chapter 1: Page 18

    Principle 7: Governments can Sometimes Improve Market Outcomes


     When the invisible hand does not work.
     Market failure: A solution in which a market left on its own fails to allocate resources efficiently.  Externality: The impact of one persons actions on the well-being of a bystander.  Market power: The ability of a single economic actor (or small group of actors) to have a substantial influence on market prices.
    Chapter 1: Page 19

    HOW THE ECONOMY AS A WHOLE WORKS


     The last three principles concern the workings of the economy as a whole.

    Chapter 1: Page 20

    Principle 8: A Countrys Standard of Living Depends on its Ability to Produce Goods and Services
     Standard of Living may be measured in different ways (e.g. personal income or total
    market value of a nations production.) Differences in standard of living between countries or even provinces is attributable to the productivity of the country or province.

     Productivity: The amount of goods and services


    produced from each hour of a workers time.

    Productivity => Standard of Living

    Chapter 1: Page 21

    Principle 9: Prices Rise when the Government Prints Too Much Money
     In Germany
     In January 2009, a Gold cost Rs 12000 *.  In September 2009, the Gold cost was Rs 15900*  Inflation: An increase in the overall level of prices in the economy. One cause of inflation is the growth in the quantity of money. When the government creates large quantities of money, the value of the money falls.
    Chapter 1: Page 22

    Principle 10: Society Faces a ShortShort-Run Tradeoff Between Inflation and Unemployment.
     Phillips curve: A curve that shows the short-run tradeoff between inflation and unemployment.

    Chapter 1: Page 23

    Summary
    When individuals make decisions, they face tradeoffs among alternative goals. The cost of any action is measured in terms of foregone opportunities. Rational people make decisions by comparing marginal costs and marginal benefits. People change their behavior in response to the incentives they face.
    Chapter 1: Page 24

    Summary
    Trade can be mutually beneficial. Markets are usually a good way of coordinating trade among people. Government can potentially improve market outcomes if there is some market failure or if the market outcome is inequitable. Productivity is the ultimate source of living standards.
    Chapter 1: Page 25

    Summary
    Money growth is the ultimate source of inflation. Society faces a short-run tradeoff between inflation and unemployment.

    Chapter 1: Page 26

    The End

    Chapter 1: Page 27

    You might also like