Warm Up #2 (Chapter 1):
Reviewing Adam Smith, Economic Enigmas, and
The Seven Principles of an Economic Way of Thinking
Name: ____________________________
Period: ____
1. Explain the meaning of the following quotes in your own words:
Source: Adam Smith, “An Inquiry into the Nature and Causes of the Wealth of
Nation.” 1776.
“Man has almost constant occasion for the help of his brethren, and it is in
vain for him to expect it from their benevolence only. He will be more likely to prevail
if he can interest their self-love in his favour, and show them that it is for their own
advantage to do for him what he requires of them. Whoever offers to another a bargain
of any kind, proposes to do this. Give me what I want, and you shall have this which
you want, is the meaning of every such offer; and it is the manner that we obtain from
one another the far greater part of those good offices which we stand in need of. It is
not from the benevolence of the butcher, the brewer, or the baker that we expect our
dinner, but from their regard to their own interest. We address ourselves, not to their
humanity but to their self-love.”
2. “Economists use models to help them understand how the world works. An
economic model is a simplified version of reality that often allows economists to
focus on the effects of one change at a time.”1 One of these models refers to people
as “homo economicus,” or economic (rational) man. Do you consider yourself
“homo economicus” when it comes to your behavior / decision-making? Explain
your answer.
1
Econ.Alive! Power to Choose, p.14.
3. Just a reminder: ECONOMIC ENIGMA – a puzzle (usually in the
form of a question) that seems to defy common sense
This example does not necessarily deal with an “economic” question, but it could be
solved using an economic way of thinking!
Mystery: Every news stand sells magazines featuring glamorous stylish people. Many
Americans admire these stylish people. Some fantasize about meeting or even dating the
heart throbs of People Magazine, Glamour, GQ, and the rest.
Yet social scientists found that people who are very attractive – those who seem most
desirable – are less likely to marry than those people whose appearance is more ordinary.
ENIGMA: You might think that heart throbs would have suitors lined up
outside their doors, eager for marriage. Why is this not so? What
happens to the heart throbs on the way to the altar?
Below you will find a list of clues. Some clues are relevant to explaining your mystery and
some are not. Identify the most relevant clue(s) and explain your mystery by using any
applicable Principles of Economic Thinking.
Clues:
1. Celebrities are often physically attractive
2. Some men and women choose not to date highly. attractive
people because they know that many other people are
interested in such attractive individuals.
3. Attractive people often fear that other individuals take an
interest in them only for their appearance rather than their
character / personality.
4. Some people fear that having a highly attractive spouse
invites unwelcome advances from outsiders.
5. Today young people in the United States marry at later ages.
6. Married couples on average earn twice as much income as
unmarried couples.
7. The typical wedding in the United States cost $28,400 (2013
statistic).
7 Principles of an Economic
Way of Thinking:
1.
2.
3.
4.
5.
Scarcity Forces Tradeoffs
Costs versus Benefits
Thinking at the Margin
Incentives Matter
Trade Makes People Better
Off
6. Markets Coordinate Trade
7. Future Consequences
Count
Most relevant clue(s) to the enigma: ___________________
Explanation (use any applicable Principle of an Economic Way of Thinking):
_________________________________________________________________________
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PRINCIPLES OF ECONOMIC WAY OF THINKING – REVISITED!
1. SCARCITY FORCES TRADEOFFS PRINCIPLE (“no-free-lunch principle”)
Limited resources (scarcity) force people to make choices and face tradeoffs when
they choose.
Your Example:
2. COST-BENEFIT ANALYSIS PRINCIPLE
Actions are taken when the benefits (what you get) of that action are thought to be
greater than their costs (what you give up).
Your Example:
3. THINKING-AT-THE-MARGIN PRINCIPLE
Most of our daily decisions involve choices about a “little more” or a “little less”
of something (also known as “increments” or “on the margin”). We don’t
regularly make BIG decisions that result in enormous changes.
Your Example:
4. INCENTIVES-MATTER PRINCIPLE
People respond to various motivators (incentives), both positive and negative, in
predictable ways.
Your Example:
5. TRADE-MAKES-PEOPLE-BETTER-OFF PRINCIPLE
A person ends up with more and better choices when he/she focuses on his/her
skills or strengths and trade with others instead of trying to do everything solo.
Your Example:
6. MARKETS-COORDINATE-TRADE PRINCIPLE
A voluntary exchange between buyers and sellers satisfies both parties in the most
efficient way.
Your Example:
7. FUTURE-CONSEQUENCES-COUNT PRINCIPLE
All decisions made today have consequences, both positive and/or negative, in the
future.
Your Example: