经济学原理讲义-英文
曼昆《经济学原理》讲座讲义(英文)
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
4. People respond to incentives.
Marginal changes in costs or benefits motivate people to respond. The decision to choose one alternative over another occurs when that alternative’s marginal benefits exceed its marginal costs!
Ten Principles of Economics
How People Make Decisions
People face tradeoffs. The cost of something is what you give up to get it. Rational people think at the margin. People respond to incentives.
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
6. Markets are usually a good way to organize economic activity.
Because households and firms look at prices when deciding what to buy and sell, they unknowingly take into account the social costs of their actions. As a result, prices guide decision makers to reach outcomes that tend to maximize the welfare of society as a whole.
经济学原理英文课件 (1)
Policy Effects in the Goods and Money Markets
Expansionary Policy Effects Contractionary Policy Effects The Macroeconomic Policy Mix
An increase in the interest rate from 3 percent to 6 percent lowers planned aggregate expenditure and thus reduces equilibrium income from Y0 to Y1.
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Looking Ahead: Determining the Price Level
Appendix: The IS-LM Model
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goods market The market in which goods and services are exchanged and in which the equilibrium level of aggregate output is determined.
Aggregate Markets
CHAPTER OUTLINE Planned Investment and the Interest Rate
Other Determinants of Planned Investment Planned Aggregate Expenditure and the Interest Rate
Planned Investment and the Interest Rate
经济学原理英文课件 (14)
TABLE 20.1 United States Balance of Payments, 2009
All transactions that bring foreign exchange into the United States are credited (+) to the current account; all transactions that cause the United States to lose foreign exchange are debited (−) to the current account Current Account Goods exports Goods imports (1) Net export of goods Exports of services Imports of services (2) Net export of services Income received on investments Income payments on investments (3) Net investment income (4) Net transfer payments (5) Balance on current account (1 + 2 + 3 + 4) Capital Account (6) Change in private U.S. assets abroad (increase is –) (7) Change in foreign private assets in the United States (8) Change in U.S. government assets abroad (increase is –) (9) Change in foreign government assets in the United States (10) Balance on capital account (6 + 7 + 8 + 9) (11) Net capital account transactions (12) Statistical discrepancy (13) Balance of payments (5 + 10 + 11 + 12) Billions of dollars 1,045.5 –1,562.6 –517.1 509.2 –370.8 138.4 561.2 –472.2 89.0 –130.2 –419.9 –727.0 –12.3 489.6 447.6 197.9 –2.9 224.9 0
经济学原理英文课件 (2)
FIGURE 13.2 Shifts of the Short-Run Aggregate Supply Curve
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The Equilibrium Price Level
equilibrium price level The price level at which the aggregate demand and aggregate supply curves intersect.
Aggregate Supply and the Equilibrium Price Level
CHAPTER OUTLINE The Aggregate Supply Curve
The Aggregate Supply Curve: A Warning Aggregate Supply in the Short Run Shifts of the Short-Run Aggregate Supply Curve
The Behavior of the Fed
Targeting the Interest Rate The Fed’s Response to the State of the Economy Fed Behavior Since 1970 Interest Rates Near Zero Inflation Targeting
Looking Ahead
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The Aggregate Supply Curve
aggregate supply The total supply of all goods and services in an economy.
The Aggregate Supply Curve: A Warning
曼昆《经济学原理》(宏观经济学分册)英文原版课件
How Productivity Is Determined
• Technological knowledge includes society’s understanding of the best ways to produce goods and services.
• Human capital includes the resources expended transmitting this understanding to the labor force.
• In the United States over the past century, average income as measured by real GDP per person has grown by about 2 percent per year.
Production and Growth
• Physical capital is a produced factor of production.
• It is an input into the production process that in the past was an output from the production process.
Table 1 The Variety of Growth Experiences
ECONOMIC GROWTH AROUND THE WORLD
• Living standards, as measured by real GDP per person, vary significantly among nations.
political stability. – Promote free trade. – Promote research and development.
2023-曼昆《经济学原理》英文版完整讲义丛externalities
Negative ExternalitiesAutomobile exhaustCigarette smokingBarking dogs (loud pets)Loud stereos in an apartment building
Positive Externalities
A technology spillover is a type of positive externality that exists when a firm’s innovation or design not only benefits the firm, but enters society’s pool of technological knowledge and benefits society as a whole.
Welfare Economics: A Recap
The Market for Aluminum For each unit of aluminum produced, the social cost includes the private costs of the producers plus the cost to those bystanders adversely affected by the pollution.
The Coase Theorem
The Coase Theorem is a proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own.Transactions CostsTransaction costs are the costs that parties incur in the process of agreeing to and following through on a bargain.
2023-曼昆《经济学原理》英文版完整讲义丛elasticity
(a) Perfectly Inelastic Demand: Elasticity Equals 0
Quantity
0
Price
Figure 1 The Price Elasticity of Demand
(b) Inelastic Demand: Elasticity Is Less Than 1
TR = P x Q
Figure 2 Total Revenue
Quantity
0
Price
Elasticity and Total Revenue along a Linear Demand Curve
With an inelastic demand curve, an increase in price leads to a decrease in quantity that is proportionately smaller. Thus, total revenue increases.
Figure 3 How Total Revenue Changes When Price Changes: Inelastic Demand
Quantity
0
Price
Quantity
0
Price
An Increase in price from $1 to $3 …
… leads to an Increase in total revenue from $100 to $240
Example: If the price of an ice cream cone increases from $2.00 to $2.20 and the amount you buy falls from 10 to 8 cones, then your elasticity of demand would be calculated as:
曼昆《经济学原理》英文版完整讲义丛elasticity精品文档45页
Copyright © 2004 South-Western/Thomson Learning
(2.(21001028.)00)1010001200% %2 2.00
Copyright © 2004 South-Western/Thomson Learning
The Midpoint Method: A Better Way to Calculate Percentage Changes and Elasticities • The midpoint formula is preferable when
increases from $2.00 to $2.20 and the amount
you buy falls from 10 to 8 cones, then your
elasticity of demand, using the midpoint
Elasticity . . .
• … allows us to analyze supply and demand with greater precision.
• … is a measure of how much buyers and sellers respond to changes in market conditions
Copyright © 2004 South-Western/Thomson Learning
The Price Elasticity of Demand and Its Determinants • Demand tends to be more elastic :
经济学原理课件(英文)4
=
Price of IceCream Cone
Market Demand
Price of IceCream Cone
2.00
2.00 1.00
2.00 1.00
1.00
4
8
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Quantity of Ice-Cream Cones
Quantity of Ice-Cream Cones
Quantity of Ice-Cream Cones
Ben’s Supply Schedule
The Supply Curve: The Relationship between Price and Quantity Supplied
Supply Curve
The supply curve is the graph of the relationship between the price of a good and the quantity supplied.
Monopolistic Competition
Many sellers Slightly differentiated products Each seller may set price for its own product
DEMAND
Quantity demanded is the amount of a good that buyers are willing and able to purchase. Law of Demand
Consumer Income Normal Good
Price of IceCream Cone
$3.00 2.50 2.00 1.50 1.00 0.50 Increase in demand
经济学原理英文版课件-总需求及供给
6
Classical Economics—A Recap
▪ Most economists believe classical theory describes the world in the long run, but not the short run.
16,000
14,000 12,000
U.S. real GDP, billions of 2005 dollars
10,000
8,000
6,000 4,000 2,000
The shaded bars are
recessions
0 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
5
Classical Economics—A Recap
▪ The previous chapters are based on the ideas of classical economics, especially:
▪ The Classical Dichotomy, the separation of variables into two groups: ▪ Real – quantities, relative prices ▪ Nominal – measured in terms of money
17
1 A C T I V E L E A R N I N G
The Aggregate-Demand curve
What happens to the AD curve in each of the following scenarios?
经济学原理英文课件 (20)
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Why Study Economics?
To Understand Global Affairs An understanding of economics is essential to an understanding of global affairs.
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The Scope of Economics
Microeconomics and Macroeconomics
microeconomics The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units—that is, firms and households.
macroeconomics The branch of economics that examines the economic behavior of aggregates—income, employment, output, and so on—on a national scale.
Microeconomics looks at the individual unit—the household, the firm, the industry. It sees and examines the “trees.” Macroeconomics looks at the whole, the aggregate. It sees and analyzes the “forest.”
曼昆《经济学原理》英文版完整讲义丛externalities
EXTERNALITIES AND MARKET INEFFICIENCY
• Positive Externalities
• Immunizations • Restored historic buildings • Research into new technologies
路漫漫其悠远
曼昆《经济学原理》英文版完整讲义 丛externalities
• The optimal output level is more than the equilibrium quantity.
• The market produces a smaller quantity than is socially desirable.
• The social value of the good exceeds the private value of the good.
路漫漫其悠远
曼昆《经济学原理》英文版完整讲义 丛externalities
Figure 3 Education and the Social Optimum
Price of Education
Supply (private cost)
Social value Demand (private value)
Figure 1 The Market for Aluminum
Price of Aluminum
Supply (private cost)
Equilibrium
Demand (private value)
0
QMARKET
QuantityBiblioteka ofAluminumCopyright © 2004 South-Western
经济学原理英文课件 (15)
Aggregate
Aggregate
Income, Y Consumption, C
0
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100
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400
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800
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The Keynesian Theory of Consumption
FIGURE 8.4 Deriving the Saving Function from the Consumption Function in Figure 8.3
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The Keynesian Theory of Consumption
marginal propensity to consume (MPC) That fraction of a change in income that is consumed, or spent.
marginal propensity to consume slope of consumption function
The Saving/Investment Approach to Equilibrium Adjustment to Equilibrium
The Multiplier
The Multiplier Equation The Size of the Multiplier in the Real World
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8 Aggregate
Expenditure and Equilibrium Output
CHAPTER OUTLINE The Keynesian Theory of Consumption
曼昆《经济学原理》英文原版重要知识点课件
13FINAL THOUGHTS36Five Debates OverMacroeconomicPolicyFive Debates over MacroeconomicPolicy1.Should monetary and fiscal policymakers try tostabilize the economy?2.Should monetary policy be made by rule ratherthan by discretion?than by discretion?3.Should the central bank aim for zero inflation?4.Should the government balance its budget?5.Should the tax laws be reformed to encourage saving?1Should monetary and fiscal 1.Should monetary and fiscalpolicymakers try to stabilize the economy?Pro: Policymakers should try tostabilize the economy•The economy is inherently unstable, and left on its own will fluctuate.•Policy can manage aggregate demand in order to offset this inherent instability and reduce the to offset this inherent instability and reduce the severity of economic fluctuations.Pro: Policymakers should try tostabilize the economy •There is no reason for society to suffer through the booms and busts of the business cycle.•Monetary and fiscal policy can stabilize aggregate demand and,thereby,production and aggregate demand and, thereby, production and employment.Con: Policymakers should not try to stabilize the economy •Monetary policy affects the economy with long and unpredictable lags between the need to act and the time that it takes for these policies to work.•Many studies indicate that changes in monetary policy have little effect on aggregate demand until about six months after the change is made.Con: Policymakers should not try to stabilize the economy •Fiscal policy works wi th a lag because of the long political process that governs changes in spending and taxes.•It can take years to propose,pass,andIt can take years to propose, pass, and implement a major change in fiscal policy.Con: Policymakers should not try to stabilize the economy•All too often policymakers can inadvertently exacerbate rather than mitigate the magnitude of economic fluctuations.•It might be desirable if policy makers couldPro: Monetary policy should bemade by rule •Discretionary monetary policy c an suffer fromincompetence and abuse of power.•To the extent that central bankers allythemselves with politicians,discretionary themselves with politicians, discretionarypolicy can lead to economic fluctuations thatreflect the electoral calendar—the politicalbusiness cycle.Pro: Monetary policy should bemade by rule•There may be a discrepancy between what policymakers say they will do and what they actually do—called time inconsistency of policy.p y•Because policymakers are so often time inconsist ent, people are skeptical when central bankers announce their intentions to reduce the rate of inflation.Pro: Monetary policy should bemade by rule •Committing the Fed to a moderate and steady growth of the money supply would limit incompetence, abuse of power, and time inconsistency.y Con: Monetary policy should not bemade by rule•An important advantage of discretionary monetary policy is its flexibility.•Inflexible policies will limit the ability of policymakers to respond to changing economic policymakers to respond to changing economic circumstances.Con: Monetary policy should not bemade by rule•The alleged problems with discretion and abuseof power are largely hypothetical.•Also, the importance of the political businesscycle is far from clear.cycle is far from clear.3.Should the central bank aim for zeroinflation?Pro: The central bank should aim forzero inflation•Inflation confers no benefit to society, but it imposes several real costs.•Shoeleather costs•Menu costs•Increased variabil ity of relative prices•Unintended changes in tax liabilities•Confusion and inconvenience•Arbitrary redistribution of wealth Pro: The central bank should aim forzero inflation•Reducing inflation is a policy with temporary costs and permanent benefits.•Once the disinflationary recession is over, the benefits of zero inflation would persist. benefits of zero inflation would persist.Con: The central bank should notaim for zero inflation•Zero inflation is probably unattainable, and toget there involves output, unemployment, andsocial costs that are too high.•Policymakers can reduce many of the costs ofPolicymakers can reduce many of the costs ofinflation without actually reducing inflation. 4.Should fiscal policymakers reducethe government debt?Pro: The government shouldbalance its budget •Budget deficits impose an unjustifiable burden on future generations by raising their taxes and lowering their incomes.•When the debts and accumulated interest come When the debts and accumulated interest come due, future taxpayers will face a difficult choice:•They can pay higher taxes, enjoy less governmentspending, or both.Pro: The government shouldbalance its budget•By shifting the cost of current government benefits to future generations, there is a bias against future taxpayers.•Deficits reduce national saving,leading to a Deficits reduce national saving, leading to a smaller stock of capital, which reduces productivity and growth.Con: The government should notbalance its budget•The problem with th e deficit is often exaggerated.•The transfer of debt to the future may be justified because some government purchases justified because some government purchases produce benefits well into the future.Con: The government should notbalance its budget•The government debt can continue to rise because population growth and technological progress increase the nation’s ability to pay the interest on the debt.5.Should the tax laws be reformed to encourage saving?Pro: Tax laws should be reformed toencourage saving•A nation’s saving rate is a key determinant of its long-run economic prosperity.•A nation’s productive capability is determined largely by how much it saves and invests for the largely by how much it saves and invests for the future.•When the savin g rate is higher, more resources are available for investment in new plant and equipment.Pro: Tax laws should be reformed toencourage saving•The U.S. tax system discourages saving in many ways, such as by heavily taxing the income from capital and by reducing benefits for those who have accumulated wealth.Pro: Tax laws should be reformed toencourage saving•The consequences of high capital income tax policies are reduced saving, reduced capital accumulation, lower labor productivity, and reduced economic growth.gPro: Tax laws should be reformed toencourage saving•An alternative to current tax policies advocated by many economists is a consumption taxconsumption tax.•With a consumption tax, a household pays taxes based on what it spends not on what it earns. based on what it spends not on what it earns.•Income that is saved is exempt from taxation untilthe saving is later withdrawn and spent onconsumption goods.Con: Tax laws should not bereformed to encourage saving •Many of the changes in tax la ws to stimulate saving would primarily benefit the wealthy.•High-income households save a higher fraction of their income than low-income households.•Any tax change that favors people who save willalso tend to favor people with high incomes.2009-11-1 C on: Tax laws should not be reformed to encourage saving • Reducing the tax burden on the wealthy would lead to a less egalitarian society. • This would also force the government to raise the tax burden on the poor. Con: Tax laws should not be reformed to e ncourage saving • Raising public saving by eliminating the government’s budget deficit would provide a more direct and equitable way to increase national saving.g Summary • Advocates of active monetary and fiscal policy view the economy as inherently unst able and believe policy can be used to offset this inherent instability. y • Critics of active policy emphasize that policy affects the economy with a lag and our ability to forecast future economic conditions is poor, both of which can lead to policybein g destabilizing. Summary • Advocates of rules for monetary policy argue that discretionary policy can suffer from incompetence, abuse of power, and time inconsistency. y • Critics of rules for monetary policy argue that discretionary policy is more flexibl e in responding to economic circumstances. Summary • Advocates of a zero-inflation target emphasize that inflation has many costs and few if any benefits. zero-inflation • Critics of a zero inflation target claim that moderate inflation imposes only small costs on society, whereas the recession necessary to reduce inflation is quite costly. Summary • Advocates of reducing the government debt argue that the debt imposes a burden on future generations by raising their taxes and lowering their incomes. • Criti cs of reducing the government debt argue that the debt is only one small piece of fiscal policy. 62009-11-1 Summary • Advocates of tax incentives for saving point out that our society discourages saving in many ways such as taxing income from capital and reducing benefits for those who have g accumulated wealth. • Critics of tax incentives argue that many proposed changes to stimulate saving would primarily benefit the wealthy and also might have only a small effect on private saving. 7。
经济学原理(英文版)
经济学原理（英文版）●Chapter 1 The scope and Method of Economics●Why study Economics?●To learn a way of Thinking●Opportunity Cost 机会成本●The best alternative that we forgo, or give up, when we make a choice or adecision.指决策过程中面临多项选择，当中被放弃而价值最高的选择●Cost: What You Must Give Up●Opportunity cost is the best thing that you must give up to get something -thehighest-valued alternative forgone.●Benefit: What You Gain●Benefit is the gain or pleasure that something brings.●Benefit is measured by what you are willing to give up.●Are there always opportunity cost for every choice we made?●Pre-conditions:●1.The resource is scarce;limited●2. Multiple usage for a resources;●3. The resource has been fully utilized;●4. Resources can be flowed freely●=/ actual cost, national cost●Marginalism 边际主义●The process of analyzing the additional or incremental(增加的) costs or benefitsarising from a choice or decision.●Marginal Cost 边际成本●is the opportunity cost of a one-unit increase in an activity.●you must give up to get one additional unit of it.●Marginal Benefit 边际效益●is the what you gain when you get one more unit of something.●is the what you gain when you get one more unit of up to get one additionalunit of it.●To understand Society●To be an informed citizen/voter●The scope of Economics●Microeconomics●The study of the choices that individuals and businesses make and the way thesechoices interact and are influenced by governments.●firms●households●Macroeconomics●The study of the aggregate (or total 总计) effects on the national economy andthe global economy of the choices that individuals, businesses, and governmentsmake.●income●employment●output●The method of Economics●positive economics 实证经济学●An approach to economics that seeks to understand behavior and the operation ofsystems without making judgments. It describes what exists and how it works.●normative economics 规范经济学●An approach to economics that analyzes outcomes of economicbehavior,evaluates them as good or bad, and may prescribe courses of action.Alsocalled policy economics.●should be ...●Chapter 2●The economic problem : Scarcity and choice●●The three basic question●What gets produced?●How is it produced ?●Who gets what is produced?●经济学要解决的问题●资源配置（和利用）Resource allocation●Scarcity means that wants are greater than what we can produce with ourresources.缺乏●Chapter 3●Demand, supply ,and market equilibrium●Firms and Households: The basic decision making units●Firm●An organization that transforms resources (inputs)into products(outputs).Firms are the primary producing units in a market economy.●entrepreneur●A person who organizes, manages, and assumes the risks of a firm,takinga new idea or a new product and turning it into a successful business.(produce to earn profit)●households●The consuming units in an economy.●Input markets and output markets: the circular flow●Output markets●The markets in which goods and services are exchanged.●Input markets●The markets in which the resources used to produce goods and services areexchanged.●Factors of production●The inputs into the production process. Land, labor, and capital are the threekey factors of production.●Demand in product and output market●quantity demand●The amount (number of units) of product that a household would buy in agiven period if it could buy all it wanted at the current market price.●demand curve●A graph illustrating how much of a given product a household would bewilling to buy at different prices.●●law of demand●The negative relationship between price and quantity demanded: Ceterisparibus, as price rises, quantity demanded decreases; as price falls,quantity demanded increases. 反比关系●Other determinants of Household demand●Income and Wealthincome available to the household●Prices of other goods and service●inferior goods 次品●substitutes 替代品●A price up, B demand upB 是A的替代品●complements,complementary goods 互补品●car price up, gasoline demand down●taste and preference●expectation 影响需求consumption policies●Shift of demand versus movement along a demand curve●shift of a demand curve (曲线移动) change in demand●factors shift the demand curve●buyers' incomes●the price of a substitute good●the number of buyers●movement along a demand curve （点移动）change in quantity demanded●Market demand●summing the quantities every consumer is willing to buy at each differentprice.●Supply in product and output market●Profit●The difference between revenues and costs.实现利润最大化是企业生产的目的●quantity supplied●The amount of a particular productthat a firm would be willingand able to offerfor sale at aparticular price during a giventime period.●law of supply●The positive relationship between price and quantity of a good supplied:Anincrease in market price will lead to an increase in quantity supplied, and adecrease in market price will lead to a decrease in quantity supplied. 正比关系●●Market equilibrium●Qd =Qs●there is no tendency for price to change●Excess demand●●●Excess supply●●Chapter 4●Demand and Supply applications 需求和供应的应用●Price rationing 价格配给● is the process by which the market system allocates goods and services toconsumers when quantity demanded exceeds quantity supplied.●●Constraints on the Market and Alternative rationing mechanism 非价格配给制●Price ceiling (最高限价)●A maximum price that sellers may charge for a good, usually set bygovernment.●non-price rationing●Queuing (排队）●Waiting in line as a means of distributing goods and services: a nonpricerationing mechanism.●Ration coupons (优惠券)●Tickets or coupons that entitle individuals to purchase a certain amount ofa given product per month.●Favored customers●Those who receive special treatment from dealers during situations ofexcess demand.●Black market (黑市)●A market in which illegal trading takes place at market-determined prices.●price floor 价格下限●A minimum price below which exchange is not permitted.●Supply and Demand and Market efficiency●Consumer surplus 消费者盈余●The difference between the maximum amount a person is willing to pay for agood and its current market price.●愿意支付与实际支付的差额。
经济学原理英文版课件-金融体系
Y=C+I+G Solve for I:
national saving
I = Y – C – G = (Y – T – C) + (T – G)
Saving = investment in a closed economy
8
m use.
Budget Deficits and Surpluses
Budget surplus = an excess of tax revenue over govt spending = T–G = public saving
▪ Decline in confidence in financial institutions ▪ 2008–2009: Customers with uninsured deposits began pulling their funds out of financial institutions.
6
m use.
National Saving
National saving
= private saving + public saving
= (Y – T – C) + (T – G)
=
Y–C–G
= the portion of national income that is not used for consumption or government purchases
5
m use.
Different Kinds of Saving
Private saving = The portion of households’ income that is not used for consumption or paying taxes =Y–T–C
经济学原理英文课件 (16)
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Scarcity, Choice, and Opportunity Cost
Scarcity and Choice in an Economy of Two or More
FIGURE 2.2 Comparative Advantage and the Gains from Trade
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Scarcity, Choice, and Opportunity Cost
Scarcity and Choice in an Economy of Two or More
FIGURE 2.4 Colleen and Bill Gain from Trade By specializing and engaging in trade, Colleen and Bill can move beyond their own production possibilities. If Bill spends all his time producing food, he will produce 240 bushels of food and no logs. If he can trade 140 of his bushels of food to Colleen for 100 logs, he will end up with 100 logs and 100 bushels of food. The figure in (b) shows that he can move from point F to point F'. If Colleen spends 27 days cutting logs and 3 days producing food, she will produce 270 logs and 30 bushels of food. If she can trade 100 of her logs to Bill for 140 bushels of food, she will end up with 170 logs and 170 bushels of food. The figure in (a) shows that she can move from point C to point C'.
经济学原理英文课件 (11)
This idea that gaps in national incomes tend to close over time is called convergence theory.
An economic historian coined the term the advantages of backwardness over 50 years ago to describe the phenomenon of less developed countries leaping ahead by borrowing technology from more developed countries.
Period 1 2 3 4
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3.0
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• Market power
– Ability of a single economic actor (or small group of actors) to have a substantial influence on market prices
– Size of the economic pie
• Equality
– Distributing economic prosperity uniformly among the members of society
– How the pie is divided into individual slices
15
How People Interact
Principle 7: Governments can sometimes improve market outcomes
• We need government
– Enforce rules and maintain institutions
• Enforce property rights
– Limited supplies – Surging demand from robust world
growth – Price of gasoline in the United States
rose from about $2 to about $4 a gallon
10
The Incentive Effects of Gasoline Prices
– Government intervention: Public policies
• May diminish inequality • Process far from perfect
19
How the Economy as a Whole Works
Principle 8: A country’s standard of living depends on its ability to produce goods and services
How People Make Decisions
• Marginal benefits
– Additional benefits
• Marginal costs
– Additional costs
• Rational decision maker
– Take action only if: – Marginal benefits > Marginal costs
Principle 6: Markets are usually a good way to organize economic activity
• Communist countries – central planning
– Government officials (central planners)
– Systematically & purposefully do the best they can to achieve their objectives
• Marginal changes
– Small incremental adjustments to a plan of action
7
8
How People Make Decisions
Principle 4: People respond to incentives • Incentive
– Something that induces a person to act – Higher price
• Buyers - consume less • Sellers - produce more
• Allocate economy’s scarce resources
– What goods & services were produced – How much was produced – Who produced & consumed these goods &
services
13
How People Interact
– Moving near an Amtrak station – Online courses – Sean “Diddy” Combs - flying on
commercial airlines
11
How People Interact
Principle 5: Trade can make everyone better off
5
How People Make Decisions
Principle 2: The cost of something is what you give up to get it
• People face trade-offs
– Make decisions
• Compare cost with benefits of alternatives
• Large differences in living standards
– Among countries – Over time
• Explanation: differences in productivity
20
How the Economy as a Whole Works
• Productivity
• Leads them to desirable market outcomes
– Corollary: Government intervention
• Prevents the invisible hand’s ability to coordinate the decisions of the households and firms that make up the economy
– Promote efficiency
• Avoid market failure
– Promote equality
• Avoid disparities in economic wellbeing
16
How People Interact
• Property rights
– Ability of an individual to own and exercise control over scarce resources
• Trade
– Allows each person to specialize in the activities he or she does best
– Enjoy a greater variety of goods and services at lower cost
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How People Interact
• Market economy - allocates resources
– Through decentralized decisions of many firms and households
– As they interact in markets for goods and services
• Opportunity cost
– Whatever must be given up to obtain one item
6
How People Make Decisions
Principle 3: Rational people think at the margin
• Rational people
18
How People Interact
• Disparities in economic wellbeing
– Market economy rewards people
• According to their ability to produce things that other people are willing to pay for
– Quantity of goods and services produced from each unit of labor input
• Market failure
– Situation in which the market on its own fails to produce an efficient allocation of resources
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How People Interact
• Causes for market failure • Externality
• Society - many decisions
– Allocate resources – Allocate output
1
Ten Principles of Economics
• Resources are scarce • Scarcity
– The limited nature of society’s resources
– Guided by prices and self interest
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How People Interact
• Adam Smith’s “invisible hand”
– Households and firms interacting in markets
• Act as if they are guided by an “invisible hand”