economics the seven principles of economics. warm up: think like an economist if you could choose...
TRANSCRIPT
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?
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?
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
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?
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?
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?
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?
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?
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
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
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
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!