Nine Principles of Economic Thinking National Council for Economic Education (NCEE)

Nine Principles of Economic Thinking  Everything has a cost …your lunch in the cafeteria, of course, but think about what you give up to have that lunch —study for test at last hour, a date with your girlfriend, etc.

Nine Principles of Economic Thinking  People choose for good reasons … you choose to gain benefit that is your own self-interest. A choice overcomes your hunger, gives you a better grade, or an enjoyable time with your girlfriend.

Nine Principles of Economic Thinking  Incentives matter … the chance to get a good grade in AP Economics is what drives you to work hard, but working hard also brings the reward of being admitted to a good college.

Nine Principles of Economic Thinking  Economic actions carry secondary effects … if you give up your lunch and spend more money on the date with your girlfriend this week, the secondary effect of that action is to impress her and have a date for the prom!

Nine Principles of Economic Thinking  People gain from voluntary trade … both parties win in trade; I give up cash and the grocery store gives me food for my family.

Nine Principles of Economic Thinking  Economic Thinking… is marginal thinking. is marginal thinking. … the extra benefits of an action must be in line with the extra cost of taking that action. This is called “thinking on the margin”.

Nine Principles of Economic Thinking  The price of a good or service is affected by people’s choice. … demand and supply are forces in the market that determine price; when there is more demanded than supplied, the price will rise; when there is less demanded than supplied, the price will decrease.

Nine Principles of Economic Thinking  People create economic systems to influence choice and incentives … an economic system is an institutional idea that sets the method by which the basic economic questions are answered—What to produce? How to produce? For whom to produce? When to change?

Nine Principles of Economic Thinking  The test of a theory is its ability to predict What is Economics? It is the study of how a society is able to satisfy the greatest needs and wants with the limited resources available. Economists, therefore, engage in a form of the Scientific Process—observation, hypothesize, test, theorize, and lastly solve problems. Solving problems make is easier if the theory is predictive.

AP Economics introduces a way of thinking and a set of terms that are likely to be different from what other courses you have taken in the Social Science field. The mastery of the “economic way of thinking” and the internalization of the economic terminology is a major step in gaining an understanding of the concepts and ideas of AP Economics.