Economic Foundations for Civics Teachers Gus A. Stavros Center for Economic Education Dr. James Gwartney Dr. Joe Calhoun Dr. Joab Corey August 16, 2011

Section 1 Basic Elements of Economics

The story of wealth and health for 200 countries over 200 years

6 Everyone Responds to Incentives! Incentives matter: choice is influenced in a predictable way by changing incentives ex. Money Game ex. Killer Seatbelts ex. Prices

7 Everyone Responds to Incentives! This economic principle influences all people Students Students Politicians Politicians Altruists Altruists Criminals Criminals

8 There is No Such Thing as a Free Lunch Because resources are scarce, trade-offs must be made. Opportunity Cost: The highest valued alternative that must be sacrificed when choosing an option Even if it is free to you, it is not free to society!

9 There is No Such Thing as a Free Lunch Opportunity Cost: “With every choice you risk the life you would have had; with every decision, you lose it.” – Richard Bach

10 Voluntary Trade Promotes Economic Progress Because the value of a good or service is subjective, voluntary trade moves goods from people who value them less to people who value them more Because the value of a good or service is subjective, voluntary trade moves goods from people who value them less to people who value them more Ex. The Candy Game Ex. The Candy Game Trade also leads to specialization, innovation, and peace! Trade also leads to specialization, innovation, and peace!

11 Prices bring the choices of buyers and sellers into balance Buyers prefer to buy things for lower prices Buyers prefer to buy things for lower prices Sellers prefer to sell things for higher prices Sellers prefer to sell things for higher prices Market prices brings these two conflicting forces into balance.

12 Profits direct businesses toward activities that increase wealth A profit occurs only when the value of the good produced is greater than the value of the resources used for its production. Losses are penalties imposed on those who produce goods that are valued less than the resources required for their production

The Process of Wealth Creation Resources Land Labor Raw Materials Time Entrepreneurs: People who make, combine, and arrange resources to create new goods and services Consumer Goods and Services: Pizza Haircuts Televisions Cell Phones

14 The invisible hand directs people toward activities that promote the general welfare The Invisible Hand Principle: The tendency for people, while pursuing their own interests, to promote the economic well-being of society.

The invisible hand directs people toward activities that promote the general welfare

End of Section 1….Enjoy your Break! Thank You!