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Economics

Economics. The Seven Principles of Economics. Warm Up: Think Like an Economist. If you could choose between two nearly identical products–one that is free and one that you have to pay for–which would you choose? Why ?

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Economics

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  1. Economics The Seven Principles of Economics

  2. Warm Up: Think Like an Economist • If you could choose between two nearly identical products–one that is free and one that you have to pay for–which would you choose? Why? • If you were opening a new business, would you select a location closer to or farther away from a business that sold similar or even identical product? Why? • If you could make a small change in your daily routine that would save you time and money, would you make the change? Why or why not?

  3. Introduction • Economics IS more than just money, taxes, banking, and trade • Economists have developed principles that represent a specific way of thinking • The number of principles may change depending on the economist, but the overall message is the same

  4. Principle #1: Scarcity Forces Tradeoffs • Remember the definition of “Economics” • Four Words: What are they? (L R, U W) • Scarcity • the condition that results because people have limited resources but unlimited wants • Must make choices • Every choice involves tradeoffs • No such thing as a free lunch • What choices and tradeoffs do you think about or make?

  5. Principle #2: Costs vs. Benefits • Principle #1 makes us choose, but how do we decide? • Economists assume that people make choices based on estimated costs and benefits • Cost v. Benefit analysis • Lists • Weighted calculations • What are the costs v. benefits of sleeping one hour later each day?

  6. Principle #3: Thinking at the Margin • Margin is the border or outer edge • “A little more” or “a little less” rather than all or nothing • Usually decisions are not a wholesale change • Marginal cost: What you give up to add “one unit” to an activity • Marginal benefit: What you gain by adding one more unit • Example: Studying. Should you study 2 hours for Econ, or 3?

  7. Principle #4: Incentives Matter • Costs and benefits influence our behavior • They are INCENTIVES • People respond to them • Can be positive or negative • What are some examples you can think of?

  8. Principle #5: Trade Makes People Better Off • Why don’t we all make our own clothes, or grow our own food? • Adam Smith: none of us is equally skilled at everything • Concentrate on what we do best, and trade for the rest! • Examples?

  9. Principle #6: Markets Direct Trade • What is a market to you? • Economists take a larger view • A market is any arrangement that brings buyers and sellers together to do business • Can exist anywhere • When markets operate freely, both sides will trade until each is satisfied (theory) • Result is efficient market • Adam Smith: Invisible Hand

  10. Principle #7: Future Consequences Count • Do people think long term or short term? • Generally shortsighted; they look for immediate benefits and costs • Decisions always have long term consequences, though • Example: 1968 VT law banned road side billboards; result---people built large sculptures and statues to get attention (19 ft Genie, giant squirrel) • Unintended Consequences

  11. Conclusion • Now you know the principles, it is time to put them into action by analyzing some data on real world situations. • But first… • http://www.youtube.com/watch?v=VVp8UGjECt4

  12. Conclusion • You will now take on the role of economists • you will practice analyzing enigmas and applying the principles of economic thinking to explain each enigma in groups. • 3 enigmas around the room. • Use the handouts provided to complete your group work. • EACH STUDENT MUST TURN IN THEIR OWN HANDOUT!

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