section 1 basic elements of economics. the story of wealth and health for 200 countries over 200...
TRANSCRIPT
Section 1
Basic Elements of Economics
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Global Economic Growth
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Global Life Expectancy
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The story of wealth and health for 200 countries over 200 years
5
Everyone Responds to Incentives!
Incentives matter: choice is influenced in a predictable way by changing incentives
ex. Money Gameex. Killer Seatbeltsex. 5th grade spelling testsex. Prices
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Everyone Responds to Incentives!
This economic principle influences all people
Students
Politicians
Altruists
Criminals
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Everyone Responds to Incentives!
Individuals are rational: they try to get the most from their limited resources.
“greatest benefit at least possible cost”
Note: What is rational for one person may not be rational for everyone
8
There is No Such Thing as a Free Lunch
Because resources are scarce, trade-offs must be made.
Opportunity Cost: The highest valued alternative that must be sacrificed when choosing an option
Even if it is free to you, it is not free to society!
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There is No Such Thing as a Free Lunch
Opportunity Cost:
“With every choice you risk the life you would have had; with every decision, you lose it.” – Richard Bach
There is No Such Thing as a Free Lunch
What do we want:More Health Care?A Cleaner Environment?Less Debt?
Then what do we give up?Social Security?Business Investment?Unemployment Benefits?
11
Voluntary Trade Promotes Economic Progress
Because the value of a good or service is subjective, voluntary trade moves goods from people who value them less to people who value them more
Ex. The Candy Game
Trade also leads to specialization, innovation, and peace!
Supply and Demand
LAW OF DEMAND When a rise in the price of a good or
service makes it more expensive for buyers to purchase it, they will normally choose to buy fewer units.
The opposite is true when a price falls. Thus, there is an inverse relationship
between the price of a good and the amount buyers will purchase. This is the law of demand.
Supply and Demand
Supply and Demand
LAW OF SUPPLY Higher prices will make it more attractive
for sellers to provide the good or service. The opposite is true if prices fall. Thus, there is a positive relationship
between the price of a good or service and the quantity sellers will be willing to supply. This is the law of supply.
Supply and Demand
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Prices bring the choices of buyers and sellers into balance
Buyers prefer to buy things for lower prices Sellers prefer to sell things for higher prices
Market prices brings these two conflicting forces into balance.
Market Equilibrium
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Profits direct businesses toward activities that increase wealth
A profit occurs only when the value of the good produced is greater than the value of the resources used for its production.
Losses are penalties imposed on those who produce goods that are valued less than the resources required for their production
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People Earn Income by Helping Others
The process by which some people become rich will make everybody richer.
Ex. Bill Gates
Wrong Right!
The Process of Wealth Creation
ResourcesLandLaborRaw
MaterialsTime
Entrepreneurs:People who make,
combine, and arrange resources
to create new goods and services
Consumer Goods and Services:
PizzaHaircuts
TelevisionsCell Phones
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The invisible hand directs people toward activities that promote the
general welfareThe Invisible Hand Principle: The
tendency for people, while pursuing their own interests, to promote the economic well-being of society.
The invisible hand directs people toward activities that promote the
general welfare
End of Section 1….Enjoy your Break!
Thank You!