10 principles of eco i


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10 principles of eco i

  1. 1. TEN PRINCIPLES OF ECONOMICS Chapter 1 ECON202, Maclachlan
  2. 2. ECONOMY <ul><li>From the Greek for one who manages a household. </li></ul><ul><li>Key concept: scarcity. </li></ul>ECON202, Maclachlan
  3. 3. Definition <ul><li>Economics: the study of how society manages its scarce resources. </li></ul><ul><li>Mankiw summarizes all of economics with 10 principles … </li></ul>ECON202, Maclachlan
  4. 4. 1. People face trade-offs. ECON202, Maclachlan
  5. 5. 2. The cost of something is what you give up to get it. ECON202, Maclachlan
  6. 6. 3. Rational people think at the margin. ECON202, Maclachlan
  7. 7. 4. People respond to incentives. ECON202, Maclachlan
  8. 8. 5. Trade can make everyone better off. ECON202, Maclachlan
  9. 9. 6. Markets are usually a good way to organize economic activity. ECON202, Maclachlan
  10. 10. Governments can sometimes improve market outcomes. ECON202, Maclachlan
  11. 11. 8. A country’s standard of living depends on its ability to produce goods and services. ECON202, Maclachlan
  12. 12. 9. Prices rise when the government prints too much money. ECON202, Maclachlan
  13. 13. 10. Society faces a short-run tradeoff between inflation and unemployment. ECON202, Maclachlan
  14. 14. Economists as Advisors <ul><li>Harry Truman said he wanted a one-armed economist. </li></ul>ECON202, Maclachlan
  15. 15. Ten Things Economists Agree On <ul><li>A ceiling on rents reduces the quantity and quality of housing available. (93%) </li></ul><ul><li>Tariffs and import quotas usually reduce general economic welfare. (93%) </li></ul><ul><li>Flexible and floating exchange rates offer an effective international monetary arrangement. (90%) </li></ul><ul><li>Fiscal policy has a significant stimulative impact on a less than fully employed economy. (90%) </li></ul>ECON202, Maclachlan
  16. 16. <ul><li>5. If the federal budget deficit is to be balanced, it should be done over the business cycle rather than yearly. (85%) </li></ul><ul><li>6. Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. (84%) </li></ul><ul><li>7. A large federal budget deficit has an adverse effect on the economy. (83%) </li></ul><ul><li>8. A minimum wage increases unemployment among young and unskilled workers. (79%) </li></ul>ECON202, Maclachlan
  17. 17. <ul><li>9. The government should restructure the welfare system along the lines of a “negative income tax.” (79%) </li></ul><ul><li>10. Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%) </li></ul>ECON202, Maclachlan
  18. 18. Thinking Like an Economist Chapter 2 ECON202, Maclachlan
  19. 19. Scientific Methodology <ul><li>“ The whole of science is nothing more than the refinement of everday thinking.” </li></ul><ul><li>--Albert Einstein </li></ul>ECON202, Maclachlan
  20. 20. <ul><li>Observation </li></ul><ul><li>Theory </li></ul><ul><li>More Observation </li></ul>ECON202, Maclachlan
  21. 21. Role of Assumptions <ul><li>A physicist, a chemist and an economist are stranded on an island, with nothing to eat. A can of soup washes ashore. </li></ul><ul><li>The physicist says, &quot;Lets smash the can open with a rock.&quot; </li></ul><ul><li>The chemist says, &quot;Lets build a fire and heat the can first.&quot; </li></ul><ul><li>The economist says, &quot;Lets assume that we have a can-opener...“ </li></ul><ul><li>--Paul Samuelson </li></ul>ECON202, Maclachlan
  22. 22. The Production Possibilities Frontier ECON202, Maclachlan
  23. 23. A Shift in the Production Possibilities Frontier ECON202, Maclachlan
  24. 24. The Circular Flow ECON202, Maclachlan
  25. 25. Microeconomics vs. Macroeconomnics <ul><li>Micro: the study of how households and firms make decisions and how they interact in markets. </li></ul><ul><li>Macro: the study of economy-wide phenomena, including inflation, unemployment and growth </li></ul>ECON202, Maclachlan
  26. 26. Positive vs. Normative Statements <ul><li>Positive statements: claims that attempt to describe the world as it is. </li></ul><ul><li>Normative statements: claims that attempt to prescribe how the world should be. </li></ul>ECON202, Maclachlan
  27. 27. Figure A-1 Types of Graphs ECON202, Maclachlan
  28. 28. Figure A-2 Using the Coordinate System ECON202, Maclachlan
  29. 29. Table A-1 Novels Purchased by Emma Copyright©2003 Southwestern/Thomson Learning
  30. 30. Figure A-3 Demand Curve ECON202, Maclachlan
  31. 31. Figure A-4 Shifting Demand Curves ECON202, Maclachlan
  32. 32. Figure A-5 Calculating the Slope of a Line ECON202, Maclachlan
  33. 33. Figure A-6 Graph with an Omitted Variable ECON202, Maclachlan
  34. 34. Figure A-7 Graph Suggesting Reverse Causality ECON202, Maclachlan