ECON202, Maclachlan, Spring TEN PRINCIPLES OF ECONOMICS Week 1, Chapter 1

ECON202, Maclachlan, Spring ECONOMY From the Greek for one who manages a household. Key concept: scarcity.

ECON202, Maclachlan, Spring Definition Economics: the study of how society manages its scarce resources. Mankiw summarizes all of economics with 10 principles …

ECON202, Maclachlan, Spring People face trade-offs.

ECON202, Maclachlan, Spring The cost of something is what you give up to get it.

ECON202, Maclachlan, Spring Rational people think at the margin.

ECON202, Maclachlan, Spring People respond to incentives.

ECON202, Maclachlan, Spring Trade can make everyone better off.

ECON202, Maclachlan, Spring Markets are usually a good way to organize economic activity.

ECON202, Maclachlan, Spring Governments can sometimes improve market outcomes.

ECON202, Maclachlan, Spring A country’s standard of living depends on its ability to produce goods and services.

ECON202, Maclachlan, Spring Prices rise when the government prints too much money.

ECON202, Maclachlan, Spring Society faces a short-run tradeoff between inflation and unemployment.

ECON202, Maclachlan, Spring Economists as Advisors Harry Truman said he wanted a one-armed economist.

ECON202, Maclachlan, Spring Ten Things Economists Agree On 1.A ceiling on rents reduces the quantity and quality of housing available. (93%) 2.Tariffs and import quotas usually reduce general economic welfare. (93%) 3.Flexible and floating exchange rates offer an effective international monetary arrangement. (90%) 4.Fiscal policy has a significant stimulative impact on a less than fully employed economy. (90%)

ECON202, Maclachlan, Spring If the federal budget deficit is to be balanced, it should be done over the business cycle rather than yearly. (85%) 6. Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. (84%) 7. A large federal budget deficit has an adverse effect on the economy. (83%) 8. A minimum wage increases unemployment among young and unskilled workers. (79%)

ECON202, Maclachlan, Spring The government should restructure the welfare system along the lines of a “negative income tax.” (79%) 10. Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%)

ECON202, Maclachlan, Spring Thinking Like an Economist Chapter 2

ECON202, Maclachlan, Spring Scientific Methodology “The whole of science is nothing more than the refinement of everday thinking.” --Albert Einstein

ECON202, Maclachlan, Spring Observation Theory More Observation

ECON202, Maclachlan, Spring Role of Assumptions A physicist, a chemist and an economist are stranded on an island, with nothing to eat. A can of soup washes ashore. The physicist says, "Lets smash the can open with a rock." The chemist says, "Lets build a fire and heat the can first." The economist says, "Lets assume that we have a can-opener...“ --Paul Samuelson

ECON202, Maclachlan, Spring The Production Possibilities Frontier

ECON202, Maclachlan, Spring A Shift in the Production Possibilities Frontier

ECON202, Maclachlan, Spring The Circular Flow

ECON202, Maclachlan, Spring Microeconomics vs. Macroeconomnics Micro: the study of how households and firms make decisions and how they interact in markets. Macro: the study of economy-wide phenomena, including inflation, unemployment and growth

ECON202, Maclachlan, Spring Positive vs. Normative Statements Positive statements: claims that attempt to describe the world as it is. Normative statements: claims that attempt to prescribe how the world should be.

ECON202, Maclachlan, Spring Figure A-1 Types of Graphs

ECON202, Maclachlan, Spring Figure A-2 Using the Coordinate System

Table A-1 Novels Purchased by Emma Copyright©2003 Southwestern/Thomson Learning

ECON202, Maclachlan, Spring Figure A-3 Demand Curve

ECON202, Maclachlan, Spring Figure A-4 Shifting Demand Curves

ECON202, Maclachlan, Spring Figure A-5 Calculating the Slope of a Line

ECON202, Maclachlan, Spring Figure A-6 Graph with an Omitted Variable

ECON202, Maclachlan, Spring Figure A-7 Graph Suggesting Reverse Causality