1) The document outlines the 10 principles of economics according to Gregory Mankiw's Principles of Economics textbook. These principles are grouped into how people make decisions, how people interact, and how the economy as a whole works.
2) The principles include that people face trade-offs, the cost of something is what you give up to get it, rational people think at the margin, and people respond to incentives. It also discusses how trade can make everyone better off and how markets are usually a good way to organize economic activity.
3) Additional principles are that governments can sometimes improve market outcomes, a country's standard of living depends on its ability to produce goods and services,
1) The document outlines the 10 principles of economics according to Gregory Mankiw's Principles of Economics textbook. These principles are grouped into how people make decisions, how people interact, and how the economy as a whole works.
2) The principles include that people face trade-offs, the cost of something is what you give up to get it, rational people think at the margin, and people respond to incentives. It also discusses how trade can make everyone better off and how markets are usually a good way to organize economic activity.
3) Additional principles are that governments can sometimes improve market outcomes, a country's standard of living depends on its ability to produce goods and services,
1) The document outlines the 10 principles of economics according to Gregory Mankiw's Principles of Economics textbook. These principles are grouped into how people make decisions, how people interact, and how the economy as a whole works.
2) The principles include that people face trade-offs, the cost of something is what you give up to get it, rational people think at the margin, and people respond to incentives. It also discusses how trade can make everyone better off and how markets are usually a good way to organize economic activity.
3) Additional principles are that governments can sometimes improve market outcomes, a country's standard of living depends on its ability to produce goods and services,
1) The document outlines the 10 principles of economics according to Gregory Mankiw's Principles of Economics textbook. These principles are grouped into how people make decisions, how people interact, and how the economy as a whole works.
2) The principles include that people face trade-offs, the cost of something is what you give up to get it, rational people think at the margin, and people respond to incentives. It also discusses how trade can make everyone better off and how markets are usually a good way to organize economic activity.
3) Additional principles are that governments can sometimes improve market outcomes, a country's standard of living depends on its ability to produce goods and services,
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Microeconomics
Based on Principles of Economics (5ed) N. Gregory Mankiw
Chapter 1 - Ten Principles of Economics
Original Slides by Andreea Chiritescu - Eastern Illinois University
1 Ten Principles of Economics • Scarcity - limited nature of society’s resources • Economics – Study of how society manages its scarce resources • Economists study: – How people make decisions – How people interact with one another – Analyze forces and trends that affect the economy as a whole 2 How People Make Decisions Principle 1: People face trade-offs • Making decisions – Trade off one goal against another – Student – time – Parents – income – Society • National defense vs. consumer goods • Clean environment vs. high level of income • Efficiency vs. equality 3 How People Make Decisions Principle 1: People face trade-offs • Efficiency – Society - maximum benefits from its scarce resources – Size of the economic pie • Equality – Benefits - uniformly distributed among society’s members – How the pie is divided into individual slices 4 How People Make Decisions Principle 2: The cost of something is what you give up to get it • People face trade-offs – Make decisions • Compare cost with benefits of alternatives – Opportunity cost • Whatever most be given up to obtain one item
5 How People Make Decisions Principle 3: Rational people think at the margin • Rational people – Systematically & purposefully do the best they can to achieve their objectives • Marginal changes – Small incremental adjustments to a plan of action • Rational decision maker – take action only if – Marginal benefits > Marginal costs 6 How People Make Decisions Principle 4: People respond to incentives • Incentive – Something that induces a person to act – Higher price • Buyers - consume less • Sellers - produce more – Public policy • Change costs or benefits • Change people’s behavior
7 How People Make Decisions Principle 4: People respond to incentives – Gasoline tax • Car size & fuel efficiency; carpool; public transportation – Unintended consequences • Policymakers fail to consider how their policies affect incentives
8 How People Interact Principle 5: Trade can make everyone better off • Trade (thương mại) – Specialization • Allows each person/country to specialize in the activities he/she does best – People/countries can buy a greater variety of goods and services at lower cost
9 How People Interact Principle 6: Markets are usually a good way to organize economic activity • Communist countries – central planning – Government officials (central planners) • Allocate economy’s scarce resources – Decided » What goods & services were produced » How much was produced » Who produced & consumed these goods & services • Theory: only the government could organize economic activity to promote economic well-being for the country as a whole 10 How People Interact Principle 6: Markets are usually a good way to organize economic activity • Market economy - allocates resources – Decentralized decisions of many firms and households – As they interact in markets for goods and services – Guided by prices and self interest – Adam Smith’s “invisible hand” 11 How People Interact Principle 7: Governments can sometimes improve market outcomes • We need government – Enforce the rules – Maintain institutions - key to market economy • Enforce property rights • Property rights – Ability of an individual to own and exercise control over scarce resources 12 How People Interact Principle 7: Governments can sometimes improve market outcomes • Government intervention – Change allocation of resources – To promote efficiency • Avoid market failure – To promote equality • Avoid disparities in economic wellbeing
13 How People Interact • Market failure – Situation in which the market on its own fails to produce an efficient allocation of resources • Causes for market failure – Externality • Impact of one person’s actions on the well-being of a bystander – Market power • Ability of a single person (or small group) to unduly influence market prices 14 How People Interact • Disparities in economic wellbeing – Market economy • Rewards people - ability to produce things that other people are willing to pay for – Government intervention • Public policies – May diminish inequality – Process far from perfect
15 How the Economy as a Whole Works Principle 8: A country’s standard of living depends on its ability to produce goods and services • Large differences in living standards – Among countries – Over time • Explanation: differences in productivity
16 How the Economy as a Whole Works • Productivity – Quantity of goods & services produced from each unit of labor input • Higher productivity – Higher standard of living • Growth rate of nation’s productivity – Determines growth rate of its average income
17 How the Economy as a Whole Works Principle 9: Prices rise when the government prints too much money • Inflation – An increase in the overall level of prices in the economy • Causes for large / persistent inflation – Growth in quantity of money • Value of money falls
18 How the Economy as a Whole Works Principle 10: Society faces a short-run trade-off between inflation and unemployment • Short-run effects of monetary injections: – Stimulates - overall level of spending – Higher demand for goods and services – Firms – raise prices; hire more workers; produce more goods and services – Lower unemployment • Short-run tradeoff between inflation and unemployment 19 How the Economy as a Whole Works Principle 10: Society faces a short-run trade-off between inflation and unemployment • Short-run trade-off between unemployment and inflation – Key role – analysis of business cycle • Business cycle – Fluctuations in economic activity • Employment • Production
20 Table 1 Ten principles of economics How People Make Decisions 1: People Face Trade-offs 2: The Cost of Something Is What You Give Up to Get It 3: Rational People Think at the Margin 4: People Respond to Incentives How People Interact 5: Trade Can Make Everyone Better Off 6: Markets Are Usually a Good Way to Organize Economic Activity 7: Governments Can Sometimes Improve Market Outcomes How the Economy as a Whole Works 8: A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services 9: Prices Rise When the Government Prints Too Much Money 10: Society Faces a Short-Run Trade-off between Inflation and Unemployment 21
