This presentation shows the 10 principles of economics and its categories that will help students understand more about its nature.

1. ECONOMICS
Principles of
AM11
2

2. Lesson
Outline
-Ten Principles of Economics
-Thinking Like an Economist
-Interdependence and the
gains from Trade

3. Learning Outcomes
·Determine What Economics
is all about
·List the Ten Principles of
Economics
·Determine how Economist
view the world
Establish an understanding of the theory
of comparative advantage and explain
how people benefit from economic
interdependence

4. Economics is often associated with wealth and
finance, but it is not all about money.
Economics: the study of how society manages
scarce resources.
Focus: Choices made by individuals,
businesses, and governments.
Economics is a social science. In basic terms,
it is the study of people and their choices. It
considers how things are made (produced), how
things are moved around (distributed), and how
things are used (consumed).
DEFINING
ECONOMICS

5. Why is economics important?
Economics helps us understand historical
trends, predict future outcomes, inform
our decisions, and become more efficient
in our resource consumption.
It influences the price of your shoes to the
jobs that will be available in the future.
An economist evaluates programs, studies
human behavior, and explains social
phenomena. They can be teachers,
advisors, and consultants. Their
contributions affect everything from
household decisions to government
policy.
What does an economist do?
Thinking Like an Economist
•Economists act as scientists: using models,
assumptions, and data.
•Use of graphs and equations to explain
relationships.
•Positive statements (descriptive) vs.
Normative statements (prescriptive).
•Importance of opportunity cost in decision-
making.

6. Macroeconomics
There are two major fields of economics: macroeconomics and microeconomics.
Macroeconomics: the study of production, employment, prices, and policies on a
national scale. It looks at the economy as a whole, including a nation’s output,
unemployment, inflation, interest rates, government spending, and growth. An
example would be international trade.
Microeconomics: the study of how consumers, workers, and firms interact to
generate outcomes at the individual and business levels. Examples include a local
bakery deciding what goods to sell or you choosing to buy one product over
another.
Microeconomics
and

7. Ten Principles of Economics
Mankiw, N. Gregory
Grouped into three categories:
1. How People Make Decisions (Principles 1–4)
2. How People Interact (Principles 5–7)
3. How the Economy Works as a Whole (Principles 8–10)

8. How People Make
Decisions
1. People face trade-offs.
-involved with giving up one aspects or quantity for something in return of
aspects and quantity.
2. The cost of something is what you give up to get it.
-making decisions requires comparing the costs and benefits of alternative
courses of action.
3. Rational people think at the margin.
-Economists generally assume that people are rational.
4. People respond to incentives.
-Incentive is something that induces a person to act [by offering rewards or
punishments to people who change their behavior].

9. How People Interact
5. Trade can make everyone better off.
Trade is not like a sports competition, where one side gains and the other
side loses. Trade allows for specialization in products that benefits countries (or
families) - comparative advantage
6. Markets are usually a good way to organize economic
activity.
Many countries that once had centrally planned economies have
abandoned this system and are trying to develop market economies.
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.

10. How People Interact
7. Governments can sometimes improve market outcomes.
There are two broad reasons for the government to interfere with the
economy: the promotion of efficiency and equity.
Government policy can be most useful when there is market failure.
Market failure: a situation in which a market left on its own fails to allocate
resources efficiently.
Examples of Market Failure
Externality: the impact of one person’s actions on the well-being of a
bystander. (Ex.: Pollution)
Definition of market power: the ability of a single economic actor (or small
group of actors) to have a substantial influence on market prices.

11. How the Economy
Works as a Whole
8. A country’s standard of living depends on its ability to
produce goods & services.
Productivity: the quantity of goods and services produced from each hour
of a worker’s time.
High productivity implies a high standard of living.
9. Increase in Money Supply Causes the Price to Rise.
The value of money falls when the government creates a lot of money, so
individuals have more money and the demand for goods and services increases.
When the demand increases, price also increases and creates inflation of money.

12. How the Economy
Works as a Whole
10. Society faces a short-run trade-off between inflation and
unemployment.
Most economists believe that the short-run effect of a monetary injection
(injecting/adding money into the economy) is lower unemployment and higher
prices. An increase in the amount of money in the economy stimulates spending
and increases the demand of goods and services in the economy.

13. Trade
No one is self-sufficient – economies are interdependent.
Trade allows specialization in goods where one has advantage.
Comparative Advantage: producing goods at lower opportunity
cost.
Gains from trade: higher total production and consumption
possibilities.

14. Example – Comparative
Advantage
Farmer vs. Tailor:
Farmer specializes in crops.
Tailor specializes in clothing.
By trading, both can consume more
than they could alone.

15. Final
Thoughts
•Economics studies how scarce resources
are allocated.
•Ten principles provide a framework for
decision-making and policy.
•Thinking like an economist requires
systematic and rational analysis.
•Trade and interdependence generate
mutual benefits.

16. References
Mankiw, N. Gregory. Principles of Economics. 9th
ed., Cengage Learning, 2021.
Krugman, Paul, and Robin Wells. Microeconomics.
6th ed., Worth Publishers, 2017.
Samuelson, Paul A., and William D. Nordhaus.
Economics. 19th ed., McGraw-Hill, 2010.

17. THANK YOU!