1. ECON202, Maclachlan, Spring 20051 TEN PRINCIPLES OF ECONOMICS Week 1, Chapter 1

2. ECON202, Maclachlan, Spring 20052 ECONOMY From the Greek for one who manages a household. Key concept: scarcity.

3. ECON202, Maclachlan, Spring 20053 Definition Economics: the study of how society manages its scarce resources. Mankiw summarizes all of economics with 10 principles …

4. ECON202, Maclachlan, Spring 20054 1. People face trade-offs.

5. ECON202, Maclachlan, Spring 20055 2. The cost of something is what you give up to get it.

6. ECON202, Maclachlan, Spring 20056 3. Rational people think at the margin.

7. ECON202, Maclachlan, Spring 20057 4. People respond to incentives.

8. ECON202, Maclachlan, Spring 20058 5. Trade can make everyone better off.

9. ECON202, Maclachlan, Spring 20059 6. Markets are usually a good way to organize economic activity.

10. ECON202, Maclachlan, Spring 200510 Governments can sometimes improve market outcomes.

11. ECON202, Maclachlan, Spring 200511 8. A country’s standard of living depends on its ability to produce goods and services.

12. ECON202, Maclachlan, Spring 200512 9. Prices rise when the government prints too much money.

13. ECON202, Maclachlan, Spring 200513 10. Society faces a short-run tradeoff between inflation and unemployment.

14. ECON202, Maclachlan, Spring 200514 Economists as Advisors Harry Truman said he wanted a one-armed economist.

15. ECON202, Maclachlan, Spring 200515 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%)

16. ECON202, Maclachlan, Spring 200516 5. 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%)

17. ECON202, Maclachlan, Spring 200517 9. 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%)

18. ECON202, Maclachlan, Spring 200518 Thinking Like an Economist Chapter 2

19. ECON202, Maclachlan, Spring 200519 Scientific Methodology “The whole of science is nothing more than the refinement of everday thinking.” --Albert Einstein

20. ECON202, Maclachlan, Spring 200520 Observation Theory More Observation

21. ECON202, Maclachlan, Spring 200521 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

22. ECON202, Maclachlan, Spring 200522 The Production Possibilities Frontier

23. ECON202, Maclachlan, Spring 200523 A Shift in the Production Possibilities Frontier

24. ECON202, Maclachlan, Spring 200524 The Circular Flow

25. ECON202, Maclachlan, Spring 200525 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

26. ECON202, Maclachlan, Spring 200526 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.

27. ECON202, Maclachlan, Spring 200527 Figure A-1 Types of Graphs

28. ECON202, Maclachlan, Spring 200528 Figure A-2 Using the Coordinate System

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

30. ECON202, Maclachlan, Spring 200530 Figure A-3 Demand Curve

31. ECON202, Maclachlan, Spring 200531 Figure A-4 Shifting Demand Curves

32. ECON202, Maclachlan, Spring 200532 Figure A-5 Calculating the Slope of a Line

33. ECON202, Maclachlan, Spring 200533 Figure A-6 Graph with an Omitted Variable

34. ECON202, Maclachlan, Spring 200534 Figure A-7 Graph Suggesting Reverse Causality