Economics Principles

1. Unit 1, Chapter 1
Economic Fundamentals

2. 1. Scarcity Forces Tradeoffs
 We want a lot of things
Food
Clean water
Fully stocked stores
 But resources are limited
Limited number of farms producing food
Limited capacity to treat water
Store run out of popular items

3. So we have to make choices or tradeoffs.
Which house can you afford?

4. Everyday we make choices or tradeoffs.
Stay home
OR
Come to School

5. 2. Trade makes people better off
 Trade is the exchange of one item for
another
 Today we “trade” money for most of
life’s necessities instead of producing
them for ourselves

6. Fair Trade – hot issue in US

7. 3. Markets Coordinate Trade
 Market is anyplace where buyers and
sellers come together, either in a store
or online
 Free market = buyers and sellers trade
until both are satisfied (with sales and
purchases)

8. Farmers Market
Stock Market

9. 4. Costs versus benefits
 We make choices by comparing costs to
benefits
 Costs = loss of money, time, effort
 Benefits = gains in money, time,
experience

10. 5. Thinking on the Margin
 Marginal benefit = what you gain by
adding more one unit of something
(clothing, piece of pie)

12. 6. Incentives Matter
 Incentive – encourages person to chose
to act one way or another
 Positive incentives = points, grades,
lower
 Negative incentives = jail time, fines

13. 7. Future Consequences Count
 Today’s decision or choice effects
tomorrow
 Law of unintended consequences =
people and governments can act in
ways that have consequences that were
not expected or predicted.

14. Unintended Consequences