Lecture 1 Econ 1BB3 Jan 8/2013
10 Principles of Economics
How people make decision
1. People face trade-offs
2. The cost of something is what you give up to get it.
3. Rational people think at the margin.
4. People respond to incentives.
*Governments, businesses, employers, profs
*Behaviour (Make people want to go to tutorials)
How people interact
5. Trade can make everyone better off. (will)
6. Markets tend to increase efficiency.
*efficiency is how much stuff we make, if we make more stuff than we are more efficient.
*Market economies are centrally planned economies
*Markets are efficient because of prices.
7. Sometimes the government can eliminate market inefficiencies
*Externalities market tends to produce too much or too less.
*An externality exists when two parties affect a third party.
*This is why taxes on cigarettes are higher than other stuff (Negative externality)
*Vaccinations (Positive externality)
8. A country’s standard of living depends on its productivity
9. Prices increase when the government prints too much moey
10. There is a short-run trade-off between inflation and unemployment
Economists study a wide range of things.
What is more dangerous, a gun or a swimming pool?
(1) Why is economics difficult?
-express ideas in economics: 1. English language
*People buy less coffee when the price of coffee rises Qdc=100-0.3 Pc
(2) Economics is a social science
-social = people
-science = use scientific method
(3) Microeconomics vs Macroeconomics
-microeconomics: individual households & how they interact
-Macroeconomics: economy-wide phenomena such as interest rates, unemployment, money, and
(4) Efficiency vs Equity
Efficiency- measure of how much we produce
-efficiency is the size if the pie
-equity is how the pie is divided
When we get more efficiency we get less equity
Communism was supposed to be about equity, we share everything equally. It doesn’t work in practise.
There’s no incentive to work hard, to produce.
-Markets tend to allow us to produce more stuff, and not everyone is allowed to produce more shares.
(5) positive vs Normative analysis
-positive: the world “as it is”
-normative: the world ‘as it should be’ *value judgements (morals)
The world is flat. (Positive) Collecting some eviden