Ten Principles Of Economics Mankiw

Ten Principles Of Economics Mankiw – Economy – “oikonomos” (Greek) “He who manages the household” Household – many decisions Allocation of scarce resources Ability, effort and desire Society – many decisions Allocation of resources Allocation of production Resources are scarce

Scarcity – the limited nature of society’s resources Economics The study of how society manages its limited resources Economists study: How people make decisions How people interact with each other Analyzing forces and trends that affect the economy as a whole

Ten Principles Of Economics Mankiw

Principle 1: People must compromise Decision-making Trading one goal for another Student – time Parents – income Society National defense versus consumer goods Clean environment versus high level of income Efficiency versus equality

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Principle 1: People must compromise Efficiency Society – making the most of its limited resources Size of the economic pie Equality Benefits – fairly distributed among members of society How the pie is divided into different parts

Principle 2: The cost of something is what you give up to get it People have to compromise Making decisions Weighing the costs against the benefits of alternatives Opportunity cost Everything you have to sacrifice to get an item

Principle 3: Rational people think on the margins Rational people do everything in their power in a systematic and focused way to achieve their goals Small changes Small incremental adjustments to the plan of action Rational decision maker – only acts when the marginal benefits > Marginal costs

Principle 4: People respond to stimuli Motivation Something that drives a person to action Higher price Buyers – consume less Sellers – produce more Social policy Change costs or benefits Change people’s behavior

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Principle 4: People respond to incentives Gas tax Car size and fuel efficiency; carpooling; public transport Unintended consequences Policy makers fail to consider how their policies affect incentives

Specialization Allows each person/country to specialize in what they do best People/countries can purchase a greater variety of goods and services at lower cost

12 How people interact Principle 6: Markets are generally a good way to organize economic activity Communist countries – central planning Government officials (central planners) Allocating scarce resources in the economy Deciding what goods and services have been produced How much was produced Who produced and consumed them Goods and services Theory: only the government can organize economic activities to promote the economic prosperity of the whole country

13 How people interact Principle 6: Markets are generally a good way to organize economic activity Market economy – allocates resources Decentralized decisions by many firms and households Interaction in markets for goods and services Driven by prices and self-interest Adam Smith’s “invisible hand”

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14 How people interact Principle 7: Governments can sometimes improve market performance We need government Enforcing the rules Maintaining institutions – key to a market economy Enforcing property rights Property rights The ability to ‘an individual to own and control scarce resources

15 How People Interact Principle 7: Governments can sometimes improve market performance Government intervention Redeploy resources Promote efficiency Avoid market failures Promote equality Avoid disparities in economic prosperity

A situation in which the market alone is unable to produce an efficient allocation of resources Causes of market failure External effect Influence of one person’s action on the welfare of an outsider Market power The ability of a single person (or small group) to exert undue influence on market price

Rewards people – the ability to produce things that other people are willing to pay for Government intervention Public policy Can reduce inequalities A process far from perfect

An Explanation Of The Ten Principles Of Economics

Principle 8: A country’s standard of living depends on its ability to produce goods and services Large differences in living standards Between countries Over time Explanation: differences in productivity

Productivity Amount of goods and services produced for each unit of labor Higher productivity Higher standard of living Growth rate of a nation’s productivity Determines the growth rate of its average income

Principle 9: Prices rise when the government prints too much money Inflation Increase in the general level of prices in the economy Causes of high/persistent inflation Increase in the quantity of money Decrease in the value of money

Principle 10: Society faces a short-term trade-off between inflation and unemployment Short-term effects of cash injections: Stimulates – general spending Increases demand for goods and services Business – raises prices; hire more workers; produce more goods and services Less unemployment Short-term trade-off between inflation and unemployment

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Principle 10: Society faces a short-term trade-off between inflation and unemployment The short-term trade-off between unemployment and inflation A key role – business cycle analysis Business cycle Fluctuations in activity economy Employment Production

1 Ten Principles of Economics How People Make Decisions 1: People have to compromise 2: The cost of something is how much you have to sacrifice to get it 3: People’s rational thinking at the margin 4: People respond to incentives How people interact 5: Trade can make everyone better off 6: Markets are generally a good way to organize business 7: Governments can sometimes improve market performance How the whole economy works 8: A country’s standard of living depends on its ability to produce goods and services 9: Prices go up when the government prints a lot of money

To operate this website, we log user data and share it with data processors. To use this website, you must agree to our privacy policy, including our cookie policy. Seventh Edition Principles of Economics by N. Gregory Mankiw Wojciech Gerson ( ) Ten Principles of Economics CHAPTER Dear Instructor, Thank you for using the Premium PowerPoint presentations for Mankiw’s Principles of Economics textbooks. This area is the “notes” section. For many slides, it contains notes that are only visible to you and will not be displayed during the class presentation. On slides containing data tables or graphics, the notes area includes information about the source (often the URL or web address of the original data). On other slides, the notes area contains information that may be helpful when teaching this material, especially for new instructors and graduate teaching assistants. Notes on Chapter 1: Most instructors try to cover this chapter in one class session (especially those teaching the second of the two-semester sequence). If you are teaching the principles of microeconomics, you may want to consider skipping rules 8-10 which deal with macroeconomics. 1

What questions does economics answer? What are the principles of human decision making? What are the rules of human interaction? What are the operating rules of the economy as a whole? © 2015 Cengage Science. All rights reserved. They may not be copied, scanned or reproduced, in whole or in part, except as permitted by license distributed with a specific product or service or otherwise on a password-protected website for classroom use.

Mankiw S Ten Principles Of Economics, Translated For The Uninitiated

Scarcity: the limited nature of society’s resources Economics: the study of how society manages its limited resources, for example how people decide what to buy, how much to work, save and spend, how businesses decide how much to produce, how much of workers to hire, how society decides how to allocate your resources between national defence, consumer goods, environmental protection and other needs You can expand on some of the issues raised here. Some examples: “How do people decide the amount of work?” Time is a scarce resource – there just isn’t enough time to do everything we want to do. How do we decide how much time we spend at work? There is a trade-off: the more time we spend working, the higher our income, and therefore the more things we can buy. But the more time we spend at work, the less time we have for hobbies – hanging out with friends, hiking, watching movies, etc. (You can ask students how they decide how much time they spend at work. They will say it depends on the number or time requirements of the jobs available, but at least a few will probably say salary: the more the salary is higher, the better the job pays.) “How do companies decide what kind of labor to hire?” Businesses can employ unskilled or skilled workers. Skilled workers are more productive but cost more than unskilled workers. “How do companies decide how much to produce? Ask your students and see if any of them say, “It depends on the price of the product they’re selling.” (Some will probably say “it depends on the high demand for the product. To which you might respond” and if there is high demand for the product, what does that mean for the price that companies can get for the product?”) 2

Decision making is at the heart of economics. The individual must decide how much to save for retirement, how much to spend on various goods and services, how many hours a week to work. The company must decide how much to produce, what type of labor to hire. Society as a whole must decide how much to spend on national defense (“weapons”) and how much to spend on consumer goods (“butter”). ©lithian/Shutterstock.com 3

All decisions involve trade-offs. Examples: Going to a party the night before term leaves less time for studying. Having more money to buy things takes longer to work

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