Principles of Economics
CHAPTER
1
Ten Principles of Economics
Economics
P RINCIP LES OF
N. Gregory Mankiw
Premium PowerPoint Slides by Ron Cronovich
© 2009 South-Western, a part of Cengage Learning, all rights reserved
In this chapter, look for the answers to these questions:
§ What kinds of questions does economics address? § What are the principles of how people make decisions? § What are the principles of how people interact? § What are the principles of how the economy as a whole works?
1
What Economics Is All About
§ Scarcity: § Economics:
§ how people decide what to buy, how much to work, save, and spend
§ how firms decide how much to produce, how many workers to hire
§ how society decides how to divide its resources between national defense, consumer goods, protecting the environment, and other needs
TEN PRINCIPLES OF ECONOMICS
2
1
The principles of HOW PEOPLE MAKE DECISIONS
HOW PEOPLE MAKE DECISIONS
Principle #1: People Face Tradeoffs Principle #1: People Face Tradeoffs
All decisions involve tradeoffs. Examples:
§ Going to a party the night before your midterm leaves less time for studying.
§ Having more money to buy stuff requires working longer hours, which leaves less time for leisure.
§ Protecting the environment requires resources that could otherwise be used to produce consumer goods.
TEN PRINCIPLES OF ECONOMICS
4
HOW PEOPLE MAKE DECISIONS
Principle #1: People Face Tradeoffs Principle #1: People Face Tradeoffs
§ Society faces an important tradeoff: efficiency vs. equality
§ Efficiency: § Equality: § Tradeoff:
TEN PRINCIPLES OF ECONOMICS
5
2
HOW PEOPLE MAKE DECISIONS
Principle #2: The Cost of Something Is Principle #2: The Cost of Something Is What You Give Up to Get It What You Give Up to Get It
§ Making decisions requires comparing the costs and benefits of alternative choices.
§ The opportunity cost of any item is § It is the relevant cost for decision making.
TEN
1
Ten Principles of Economics
Economics
P RINCIP LES OF
N. Gregory Mankiw
Premium PowerPoint Slides by Ron Cronovich
© 2009 South-Western, a part of Cengage Learning, all rights reserved
In this chapter, look for the answers to these questions:
§ What kinds of questions does economics address? § What are the principles of how people make decisions? § What are the principles of how people interact? § What are the principles of how the economy as a whole works?
1
What Economics Is All About
§ Scarcity: § Economics:
§ how people decide what to buy, how much to work, save, and spend
§ how firms decide how much to produce, how many workers to hire
§ how society decides how to divide its resources between national defense, consumer goods, protecting the environment, and other needs
TEN PRINCIPLES OF ECONOMICS
2
1
The principles of HOW PEOPLE MAKE DECISIONS
HOW PEOPLE MAKE DECISIONS
Principle #1: People Face Tradeoffs Principle #1: People Face Tradeoffs
All decisions involve tradeoffs. Examples:
§ Going to a party the night before your midterm leaves less time for studying.
§ Having more money to buy stuff requires working longer hours, which leaves less time for leisure.
§ Protecting the environment requires resources that could otherwise be used to produce consumer goods.
TEN PRINCIPLES OF ECONOMICS
4
HOW PEOPLE MAKE DECISIONS
Principle #1: People Face Tradeoffs Principle #1: People Face Tradeoffs
§ Society faces an important tradeoff: efficiency vs. equality
§ Efficiency: § Equality: § Tradeoff:
TEN PRINCIPLES OF ECONOMICS
5
2
HOW PEOPLE MAKE DECISIONS
Principle #2: The Cost of Something Is Principle #2: The Cost of Something Is What You Give Up to Get It What You Give Up to Get It
§ Making decisions requires comparing the costs and benefits of alternative choices.
§ The opportunity cost of any item is § It is the relevant cost for decision making.
TEN