7 Principles of
Economics
Mr. Petersen
8th grade Economics
Preview

1.
Respond to each question.
If you could choose between two nearly
identical products—one that is free and one that
you have to pay for—which would you choose?
Why?
2.
If you were opening a new business, would you
select a location closer to or farther away from a
business that sold a similar or even identical
product? Why?
3.
If you could make a small change in your daily
routine that would save you time and money,
would you make the change? Why or why not?
What is an economic
principle?
 Factors
that help explain what may
cause, or may happen, in any economic
circumstance.
#1: The cost of something is
what you give up to get it
 Cost-benefit

analysis
What types of costs are there?
 Weigh
the pros and cons of a purchase
 Opportunity Cost: whatever must be
given up in order to obtain some item
#2: People face tradeoffs
 Is
there such thing as a “free lunch”?
 To get something, we have to give up
something else.
 Scarcity of an item drives trade off to
occur
 Question: How will you spend your
weekend?
 “Guns vs Butter”
#3 Think at the ‘margin’
 When
people make decisions, they
compare the costs and benefits of a “little
bit more or a little bit less of something”
 Marginal Benefit (MB): the extra benefit
received from a small increase in the
consumption of a good or service
 Marginal Cost (MC): the increase or
decrease in costs as a result in one more
or one less unit of output
#4: Incentives matter
 Incentive:
something positive or negative
that influences a person to act
 People respond to incentives in
predictable ways



If the interest rate on borrowing money
goes down, more people will borrow
money
When the price of a stock drops, more
people will sell their stock
Example: Seat belt laws
#5: Trade makes people
better off
 People
gain from their ability to trade with
one another.
 Not a win-lose scenario, but win-win
 Stimulates competition and choice.
 Trade allows people to specialize in what
they do best.
#6: Market Coordinates Trade
 Market
Economy: an economic system
where prices are determined and
resources are allocated through decisions
of many firms and household
 Firm: Any produce of a good or service
 Government regulation can upset the
balance
#7: Future consequences
count
 Decisions
made today will effect you later
 Short-term and Long-term effect
 Bullying example
Road trip
Economic Enigmas
 Enigma:
a puzzle that seems to defy
common sense
Can you answer these puzzles
with economic principles?
Enigma #1
Why
do economy seats
on airplanes cost
different amounts?
Enigma #2
Why
do people pay
more for name-brand
produces when there are
generic brands of the
same product available
for less?
Enigma #3
Why
do police officers
get paid so much less
than professional
baseball players?
Enigma #4
Why
does a five-day
Disneyland pass cost
only 2.5 times what a
one-day pass cost?
In conclusion…
 Economic
principles help us to
understand the reasoning behind our
decision making.