How Can You Think Like An Economist? The 7 Principles of Economic Thinking Econ Alive Chapter 1 section 3

What is an Economic Enigma? An economic enigma is a puzzle Something that can be solved using the 7 principles of economic thinking One of my former students called it a contradiction. Looks like one thing turns out to be the opposite.

# 1 Scarcity forces trade-offs Because we cannot get all of the stuff we need or want, we must choose between that which we get and that which we must give up. Like when selecting that most important of devices the cell phone. Android or iphone?

# 2 Cost Versus Benefit What will it cost me to select this particular item? What will I get in return for my Money or time? Cell phone perhaps + data and other costs Will the reward outweigh the financial outlay?

# 3 Thinking at the Margin (another one) Marginal Cost- expenditure for one additional item like shoes or pieces of pizza. Marginal Benefit- What do I actually receive when paying for that additional item? Will getting one more for the price be worth it? Maybe I shouldn’t have eaten that 15th piece 

# 4 Incentives Matter People respond in predictable ways to what Economists call incentives. Offer a reward for finding someone and more people begin looking. If you want more people to come to your store… Or to buy more stuff… Then have a sale  Quid Pro Quo America’s Most Wanted Black Friday following Thanksgiving

# 5 Trade Makes People Better Off Do you do everything for yourself? Make your own clothes? Farm your own crops? Of course not. Why not? TMPBO that’s why!

# 6 Markets Coordinate Trade If you build it… Ebay and electronic make all of that easier They will come… Amazon . Com also has taken the world by storm Don’t forget malls and outlet malls As well as facebook, twitter, as advertising tools

# 7 Future Consequences Count Like Playing checkers, there is more to consider than just if you can jump or not… Perhaps your move will lead your opponent to an even better move… Or lure him into a trap! Think about what COULD result What’s best in the long run?