This slide deck provides an overview of seven secrets and one big idea that will help students think like economists.

2. INCENTIVES
The Big Idea and
the Seven Secrets
for Thinking Like an
Economist

3. INCENTIVES
The Big Idea
• Positive and negative incentives:
– grades
• Direct and indirect incentives:
– Unintended consequences
(Born on the First of July)
• Incentives and innovation
• Incentives are everywhere

4. The Seven Secrets:
Life is About Trade-Offs
• Examples of trade-offs:
– College versus working, or a little of
both
– Cleaner environment or more production

5. The Seven Secrets:
Opportunity Cost
• What is Opportunity Cost?

6. The Seven Secrets:
Marginal Thinking
• What is marginal thinking?

7. The Seven Secrets:
Trade Creates Value
• Trade and Comparative Advantage

8. The Seven Secrets:
Markets Generally Work Well…..
• The market economy:
– eBay, craigslist, stock market,
supermarkets
– The role of prices
• Adam Smith, the Father of Economic
Thought
– It is not from the benevolence of the butcher,
the brewer, or the baker, that we expect our dinner,
but from their regard to their own interest.
– Wealth of Nations, 1776

9. The Seven Secrets:
…But Markets Sometimes
Need a Hand
• Market failure
– Poorly defined property rights
– Externalities
– Public goods
– Market power

10. The Seven Secrets:
Our Decisions Have Consequences
Now and in the Future
• Consumption and capital goods.
• The business cycle

11. The Seven Secrets:
There are No Free Lunches
• “Free” is a four-letter word!
– Who is paying?