7 principles of Economics
Transcript of 7 principles of Economics
1. Scarcity Forces Tradeoffs We want a lot of things
FoodClean waterFully stocked stores
But resources are limitedLimited number of farms producing foodLimited capacity to treat waterStore run out of popular items
2. Trade makes people better off Trade is the exchange of one item for
another Today we “trade” money for most of
life’s necessities instead of producing them for ourselves
3. Markets Coordinate Trade Market is anyplace where buyers and
sellers come together, either in a store or online
Free market = buyers and sellers trade until both are satisfied (with sales and purchases)
4. Costs versus benefits
We make choices by comparing costs to benefits
Costs = loss of money, time, effort Benefits = gains in money, time,
experience
5. Thinking on the Margin Marginal benefit = what you gain by
adding more one unit of something (clothing, piece of pie)
6. Incentives Matter
Incentive – encourages person to chose to act one way or another
Positive incentives = points, grades, lower
Negative incentives = jail time, fines
7. Future Consequences Count Today’s decision or choice effects
tomorrow Law of unintended consequences =
people and governments can act in ways that have consequences that were not expected or predicted.