Introduction to Economics

The Basics: Day 1

Respond to each question. Provide a thorough

explanation for each decision. 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?

Warm Up

With a partner, evaluate the list of questions

and statements . Underline/highlight five questions or statements

from the list that you think have something to do with economics.

When you are finished, you will share. With your partner, try to come up with a simple

definition of what economics is.

Activity

The Seven Principles of Economics

What seven principals guide an economic way of thinking?

Scarcity Forces Tradeoffs Principle, or No Free

Lunch Principle Limited resources force people to make choices

and face trade-offs when they choose. Scarcity

The result of people having limited resources, but unlimited wants.

Tradeoff The exchange of one benefit or advantage for

another that is thought to be better.

Principle One

Cost versus Benefits

People choose something when the benefits of doing so outweigh the costs

Cost What is spent in money, effort, or other sacrifices

to get something. Benefits

What is gained from something in terms of money, time, experience, or other improvements

Principle Two

Thinking at the Margin

Many decisions involve choices about using or doing a little more or a little less of something rather than making a wholesale change.

Margin The outer edge

Marginal Cost What you give up to add one unit to an activity

Marginal Benefit What you gain by adding one more unit

Principle Three

Incentives Matter

People respond to incentives in generally predictable ways

Incentive Something that motivates a person to take a

particular course of action. Positive incentives

Honor Roll, grades Negative incentives

Fines, jail

Principle Four

Trade Makes People Better Off

By focusing on what we do well and then trading with others, we will end up with more and better choices than by trying to do everything for ourselves.

Principle Five

Markets Coordinate Trade

Free markets usually do better than anyone or anything else at coordinating exchanges between buyers and sellers

Market Any arrangement that brings buyers and sellers

together to do business with each other. Invisible Hand

Adam Smith’s metaphor to explain how an individual’s pursuit of economic self-interest can promote the well-being of society as a whole.

Principle Six

Future Consequences Count

Decisions made today have consequences not only for today, but for the future

The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences . . . The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy.

—Henry Hazlitt, Economics in One Lesson, 1979 Law of Unintended Consequences

The actions of people and governments always have effects that are not expected, or that are “unintended.”

Principle Seven

What goods and services should be

produced? Should the economy focus on being self-

sufficient or concentrate on what it is good at? Should it devote resources to health and

education or defense and policing? Should we devote more resources to housing? Should an economy use resources producing

goods that are essentially useless - like 'free' toys in cereal packets, football sticker cards and so on?

What is Economics About?

How should goods and services be

produced? Should the economy use a system that is labor

intensive, thereby ensuring everyone who wants a job has one, or should we use more efficient methods of production that involve the use of machines, even if this means more pollution and fewer jobs?

Should we devote more land to production and thus solve some problems of feeding the population at the expense of encroaching into areas of natural beauty?

What is Economics About?

Who should get the resources that the

economy has produced? Should an economy be geared to providing

goods and services to every person as equally as possible or should those who work hard get more?

How do we distribute our resources?

What is Economics About?

What do you want learn more about

economics this semester?

Exit Ticket