Lecture 1 (Chapter-1 Ten Principles).pptx
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PRINCIPLES OF MICROECONOMICS ECN 201 Chapter 1: Ten Principles of Economics Lecture 1 INTRODUCING ECONOMICS The word economy comes from a Greek word for “one who manages a household.” A household and an economy face many decisions: Who will work? What goods and how many of them should...
PRINCIPLES OF MICROECONOMICS ECN 201 Chapter 1: Ten Principles of Economics Lecture 1 INTRODUCING ECONOMICS The word economy comes from a Greek word for “one who manages a household.” 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? 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. Economics is the study of how society manages its scarce resources. TEN PRINCIPLES OF ECONOMICS ‘How people make decision’ Principal 01: People face trade-offs. -Efficiency Vs Equality -Quality Vs Quantity - ‘Guns or Butter’ Principal 02: The cost of something is what you give up to get it. -Opportunity cost. Trade off Opportunity Cost Refers to the decision to pick an alternative. Refers to the value of forgone alternative. Values can cot be calculated. Values can be calculated. May have more then two options. Only have two options. Principal 03: Rational people think at the margin. -Rational people. -Marginal change. Principal 04: People respond to incentives. -Incentive ‘How people interact’ Principal 05: Trade can make everyone better off. Principal 06: Markets are usually a good way to organize economic activity. -Market economy. Principal 07: Government can sometimes improve market outcomes. -Property rights. -Market failure. -Externality. -Market power. ‘How the economy as a whole works’ Principal 08: A countries standard of living depends on its ability to produce goods and services. -Productivity Principals 09: Prices rise when the government prints too much money. -Inflation. Principal 10: Society faces a short-run trade –off between inflation and unemployment. -Business cycle.
