The Basics: Day 1
Warm Up

 Respond to each question. Provide a thorough
explanation for each decision.
 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?
 If you were opening a new business, would you select
a location closer to or farther away from a business
that sold similar or even identical product? Why?
 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?
Activity

 With a partner, evaluate the list of questions and
statements .
 Underline/highlight five questions or statements
from the list that you think have something to do with
economics.
 When you are finished, you will share.
 With your partner, try to come up with a simple
definition of what economics is.
The Seven Principles of
Economics

What seven principals guide an economic way of thinking?
Principle One

 Scarcity Forces Tradeoffs Principle, or No Free Lunch
Principle
 Limited resources force people to make choices and face
trade-offs when they choose.
 Scarcity
 The result of people having limited resources, but
unlimited wants.
 Tradeoff
 The exchange of one benefit or advantage for another
that is thought to be better.
Principle Two

 Cost versus Benefits
 People choose something when the benefits of doing so
outweigh the costs
 Cost
 What is spent in money, effort, or other sacrifices to get
something.
 Benefits
 What is gained from something in terms of money, time,
experience, or other improvements
Principle Three

 Thinking at the Margin
 Many decisions involve choices about using or doing a little
more or a little less of something rather than making a
wholesale change.
 Margin
 The outer edge
 Marginal Cost
 What you give up to add one unit to an activity
 Marginal Benefit
 What you gain by adding one more unit
Principle Four

 Incentives Matter
 People respond to incentives in generally predictable ways
 Incentive
 Something that motivates a person to take a particular
course of action.
 Positive incentives
 Honor Roll, grades
 Negative incentives
 Fines, jail
Principle Five

 Trade Makes People Better Off
 By focusing on what we do well and then trading with
others, we will end up with more and better choices than by
trying to do everything for ourselves.
Principle Six

 Markets Coordinate Trade
 Free markets usually do better than anyone or anything else
at coordinating exchanges between buyers and sellers
 Market
 Any arrangement that brings buyers and sellers together
to do business with each other.
 Invisible Hand
 Adam Smith’s metaphor to explain how an individual’s
pursuit of economic self-interest can promote the wellbeing of society as a whole.
Principle Seven

 Future Consequences Count
 Decisions made today have consequences not only for today, but
for the future
 The bad economist sees only what immediately strikes the eye; the
good economist also looks beyond. The bad economist sees only the
direct consequences of a proposed course; the good economist looks
also at the longer and indirect consequences . . . The art of
economics consists in looking not merely at the immediate but
at the longer effects of any act or policy.
—Henry Hazlitt, Economics in One Lesson, 1979
 Law of Unintended Consequences
 The actions of people and governments always have effects that
are not expected, or that are “unintended.”
What is Economics
About?

 What goods and services should be produced?
 Should the economy focus on being self-sufficient or
concentrate on what it is good at?
 Should it devote resources to health and education or
defense and policing?
 Should we devote more resources to housing?
 Should an economy use resources producing goods
that are essentially useless - like 'free' toys in cereal
packets, football sticker cards and so on?
What is Economics
About?

 How should goods and services be produced?
 Should the economy use a system that is labor
intensive, thereby ensuring everyone who wants a job
has one, or should we use more efficient methods of
production that involve the use of machines, even if
this means more pollution and fewer jobs?
 Should we devote more land to production and thus
solve some problems of feeding the population at the
expense of encroaching into areas of natural beauty?
What is Economics
About?

 Who should get the resources that the economy has
produced?
 Should an economy be geared to providing goods and
services to every person as equally as possible or
should those who work hard get more?
 How do we distribute our resources?
Exit Ticket

 What do you want learn more about economics this
semester?