1. 8 Basic Principles Economics: study of how people choose to use scarce resources to satisfy their wants

2. 1. Everything has a cost: “There is no such thing as a free lunch” Nothing in life is REALLY FREE You or someone else pays in: time, effort, lost opportunities Ex: Lunch or Education

3. 2. People choose for good reason: “Economize”- choose what they believe has the best combination of costs vs. benefits Misunderstanding: decisions only cost you in terms of money  Long commute to work?

4. 3. Incentives influence people’s choices: Incentives: benefit offered to encourage people to act in a certain way  Increase benefits and reduce costs Monetary: Non-Monetary: Economic, Moral, & Social

5. Do all incentives work? Day-Care Center (Israel)  Pick up time 4 p.m. Parents are often late (Avg.: 8/wk) Result = anxious children and at least one teacher who has to wait.  Economist Solution: Fine tardy parents (why, after all, should the day-care center take care of these kids for free?) 10-Day-care centers tested for 20-weeks  Found: 8 late pickups/week  Enact “fine” during fifth week  Late = $3/child/incident on top of regular $380/month bill  Results:  Number of late pickups increased to 20/week

6. 4. Economic systems influence peoples incentives and choices: Economic system: way a society uses its resources to satisfy peoples wants  Ex: Farming Community Based on customs and traditions The economic systems that people live in have strong influence on their incentives/choices

7. 5. People gain from “voluntary trade”: 2 + people give up something they value for something else  Both consider benefits of trade to be greater than costs  EX: JobEmployer

8. 6. People’s choices influence the value of a good or service: Good: things you buy (books, computers, ipods) Service: work you can buy (dental, car repairs) If Price (P) increases --> Buyers will buy less If Price (P) decreases --> Sellers want to sell less

9. 7. People’s choices may have unintended consequences: Hard to foresee consequences of choices  Things don’t always turn out as expected… EX: Switch from Horse and Buggy--> Car Results: Traffic Jams Air Pollution Creation of Jobs Movement to Suburbs

10. 8. Choices made today influence what happens tomorrow: Life is not a lottery  Current status (life)/How you live today is shaped by past choices. EX: Financial Collapse

11. What are they thinking? Puzzling Questions (answer two in your journal):  Why don’t cities build high-speed rail systems to cut down on huge traffic jams?  Why won’t teenagers baby-sit for $2 per hour?  Why don’t students keep the school lunch room clean?  Why don’t all students always try their best in their school courses?