In this chapter you will learn that economics is about the allocation of scarce resources, examine some of the tradeoffs that people face, learn the meaning of opportunity cost, see how to use marginal reasoning when making decisions, discuss how incentives affect people’s behavior. | PowerPoint® Lecture Presentation to accompany Principles of Economics, Third Edition N. Gregory Mankiw Prepared by Mark P. Karscig, Central Missouri State University. 1 INTRODUCTION 1 Ten Principles of Economics Economy. . . . . . The word economy comes from a Greek word for “one who manages a household.” TEN PRINCIPLES OF ECONOMICS A household and an economy face many decisions: Who will work? What goods and how many of them should be produced? What resources should be used in production? At what price should the goods be sold? TEN PRINCIPLES OF ECONOMICS Society and Scarce Resources: The management of society’s resources is important because resources are scarce. Scarcity. . . means that society has limited resources and therefore cannot produce all the goods and services people wish to have. TEN PRINCIPLES OF ECONOMICS Economics is the study of how society manages its scarce resources. TEN PRINCIPLES OF ECONOMICS How people make decisions. People face tradeoffs. The cost of . | PowerPoint® Lecture Presentation to accompany Principles of Economics, Third Edition N. Gregory Mankiw Prepared by Mark P. Karscig, Central Missouri State University. 1 INTRODUCTION 1 Ten Principles of Economics Economy. . . . . . The word economy comes from a Greek word for “one who manages a household.” TEN PRINCIPLES OF ECONOMICS A household and an economy face many decisions: Who will work? What goods and how many of them should be produced? What resources should be used in production? At what price should the goods be sold? TEN PRINCIPLES OF ECONOMICS Society and Scarce Resources: The management of society’s resources is important because resources are scarce. Scarcity. . . means that society has limited resources and therefore cannot produce all the goods and services people wish to have. TEN PRINCIPLES OF ECONOMICS Economics is the study of how society manages its scarce resources. TEN PRINCIPLES OF ECONOMICS How people make decisions. People face tradeoffs. The cost of something is what you give up to get it. Rational people think at the margin. People respond to incentives. TEN PRINCIPLES OF ECONOMICS How people interact with each other. Trade can make everyone better off. Markets are usually a good way to organize economic activity. Governments can sometimes improve economic outcomes. TEN PRINCIPLES OF ECONOMICS The forces and trends that affect how the economy as a whole works. The standard of living depends on a country’s production. Prices rise when the government prints too much money. Society faces a short-run tradeoff between inflation and unemployment. Principle #1: People Face Tradeoffs. “There is no such thing as a free lunch!” Making decisions requires trading off one goal against another. Principle #1: People Face Tradeoffs. To get one thing, we usually have to give up another thing. Guns v. butter Food v. clothing Leisure time v. work Efficiency v. equity Principle #1: People Face Tradeoffs Efficiency v. Equity Efficiency means society gets
