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1、TenPrinciplesofEconomicsEconomicsPRINCIPLESOFN.GregoryMankiwPremiumPowerPointSlides byRonCronovich1Inthischapter, lookfortheanswerstothesequestions:Whatkindsofquestionsdoeseconomicsaddress?Whataretheprinciplesofhowpeoplemakedecisions?Whataretheprinciplesofhowpeopleinteract?Wha
2、taretheprinciplesofhowtheeconomyasawholeworks?11TENPRINCIPLESOFECONOMICSWhatEconomicsIsAllAboutScarcity:thelimitednatureofsociety’sresourcesEconomics:thestudyofhowsocietymanagesitsscarceresources,e.g.howpeopledecidewhattobuy, howmuchtowork,save,andspendhowfirmsdecidehowmuchtop
3、roduce, howmanyworkerstohirehowsocietydecideshowtodivideitsresourcesbetweennationaldefense,consumergoods,protectingtheenvironment,andotherneeds02TENPRINCIPLESOFECONOMICS0TheprinciplesofHOWPEOPLE MAKEDECISIONS3TENPRINCIPLESOFECONOMICSHOWPEOPLEMAKEDECISIONSAlldecisionsinvolvetra
4、deoffs.Examples:Goingtoapartythenightbeforeyourmidtermleaveslesstimeforstudying.Havingmoremoneytobuystuffrequiresworkinglongerhours,whichleaveslesstimeforleisure.Protectingtheenvironmentrequiresresources thatcouldotherwisebeusedtoproduce consumergoods.Principle#1:PeopleFaceTra
5、deoffs04TENPRINCIPLESOFECONOMICSHOWPEOPLEMAKEDECISIONSSocietyfacesanimportanttradeoff:efficiencyvs.equalityEfficiency:whensocietygetsthemostfromitsscarceresourcesEquality:whenprosperityisdistributeduniformlyamongsociety’smembersTradeoff:Toachievegreaterequality, couldredistrib
6、uteincomefromwealthytopoor. Butthisreducesincentivetoworkandproduce,shrinksthesizeoftheeconomic“pie.”Principle#1:PeopleFaceTradeoffs05TENPRINCIPLESOFECONOMICSHOWPEOPLEMAKEDECISIONSMakingdecisionsrequirescomparingthecostsandbenefitsofalternativechoices.Theopportunitycostofanyit
7、emis whatevermustbegivenuptoobtainit.Itistherelevantcostfordecisionmaking.Principle#2:TheCostofSomethingIs WhatYouGiveUptoGetIt6TENPRINCIPLESOFECONOMICSHOWPEOPLEMAKEDECISIONSExamples:Theopportunitycostof……goingtocollegeforayearisnotjustthetuition,books,andfees,butalsotheforego
8、newages.…seeingamovieisnotjustthepriceoftheticket, butthevalu
