Lecture One: 10 Principles of Economics
January-04-12 3:36 PM
How people make decisions
1. People face trade-offs
a. Instead of coming to this lecture you could have slept, played video games etc.
1. The cost of something is what you give up to get it
a. This is the cost, of intending the lecture
1. Rational people think at the margin
a. People compare costs and benefits
b. People compare only additional costs and additional benefits (This is key)
c. People should compare or relevant costs and benefits.
a. EX: You finished one year of university, should you take another one?
• Economists would say the past is the past so what you already spent on
your fist year is irreverent to this answer.
1. People respond to incentives
How People Interact:
1. Trade can make everyone better off
a. The benefits to those who are made better off are bigger than the costs to those
who are made worse off.
1. Markets tend to increase efficiency
a. Only one centrally planned economy (not market) that is N. Korea (worded
different then book, will say why on Fri).
1. Sometimes the government can eliminate market inefficiencies (worded different
then text book, will say why on Fri).
a. Externalities (positive and negative)
i. Negative Consumption: You buy cigarettes, you smoke you get someone
else lung cancer.
ii. Negative Manufacturing: Pollution
How The Economy As a Whole Works (Macroeconomics):
1. A country's standards of living depends on its productivity
a. Counties capital GPA - if we can reproduce more stuff then that means we have
more resources to provide free healthcare etc.
1. Prices increase when the government prints too much money
a. 2008: Inflation point in Zambaouy- $