1 / 12

10 Economic Principles in Introductory Microeconomics Lecture

Learn the fundamental economic principles of tradeoffs, opportunity costs, rational thinking, incentives, trade benefits, market functioning, government role, standard of living, inflation, and output-inflation tradeoff.

rollinsl
Download Presentation

10 Economic Principles in Introductory Microeconomics Lecture

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Lecture Notes: Econ 203 Introductory MicroeconomicsLecture/Chapter 1: 10 Economic PrinciplesM. Cary LeaheyManhattan CollegeFall 2012

  2. The nature of economics; what is economics all about • Allocation of scarce resources • Households; decisions to work, save and spend • Firms: produce, hire/fire, and distribute those goods • Society: dividing those resources

  3. Principle 1: Tradeoffs • Guns versus butter • Equity versus efficiency

  4. Principle 2: Opportunity costs • What you give up to get • Relevant “cost” of decisionmaking

  5. Principle 3: Rational thinking is at the margin • Rational people go the best they can with what they have • Make incremental “marginal” decisions to existing plans • “Marginal” returns outweigh the “marginal” costs

  6. Principle 4: Incentives • Rational people respond to incentives • Internalize the externalities • Incentives don’t always work according to plan (Mankiw’s seat belt example)

  7. Principle 5: Trade Can Benefit All • Self-sufficiency has its limits • Absolute versus comparative advantage • Winners pay off the losers

  8. Principle 6: Markets work best • Market, a group of buyers and sellers • Organized activity in markets: what/how/how much/who gets • Market economy, decentralized decisions of households and firms • Reliance on price mechanism • Smith’s invisible hand • Markets better at production than distribution • Private wealth/public squalor

  9. Principle 7: Market problems/failure: the role for govt. • Externalities/market power/market failure open role for government • Govt. can: Enforce property rights (Chicago dictum) • Govt. Can: Promote efficiency/distribute the pie “better” • Internalize the externality

  10. Principle 8: Standard of living is material well being • Well being can be measured by GDP • Wide variation in living standards across time and countries • Standard of living depends on productivity-capital, labor, skills, and organization

  11. Principle 9: Inflation is a monetary phenomenon • Relative versus absolute prices • Changes in relative prices (beef/chicken) • Changes in absolute prices (inflation) • Change in the change (change in inflation) • Money/inflation link works with 10-year averages (Friedman)

  12. Principle 10: Output inflation tradeoff • In short-run, output (unemployment) and inflation can move in opposite directions—a tradeoff (the case for Keynesian “fine tuning”) • In long-run, there is no tradeoff at full employment (the divine coincident according to Blanchard)

More Related