1、Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.A Lecture Presentation in PowerPoint to AccompanyPrinciples of EconomicsSecond EditionbyN.Gregory MankiwPrepared by Mark P.Karscig,Department of Economics&Finance,Central Missouri State University.Ten Principles of EconomicsChapter
2、1Copyright 2001 by Harcourt,Inc.All rights reserved.Requests for permission to make copies of any part of thework should be mailed to:Permissions Department,Harcourt College Publishers,6277 Sea Harbor Drive,Orlando,Florida 32887-6777.Harcourt,Inc.items and derived items copyright 2001 by Harcourt,In
3、c.Economy.The word economy comes from a Greek word for“one who manages a household.”Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.A household and an economy face many decisions:uWho will work?uWhat goods and how many of them should be produced?uWhat resources should be used in
4、production?uAt what price should the goods be sold?Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.Society and Scarce Resources:The management of societys resources is important because resources are scarce.Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.Scarc
5、ity.means that society has limited resources and therefore cannot produce all the goods and services people wish to have.Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.EconomicsEconomics is the study of how society manages its scarce resources.Harcourt,Inc.items and derived item
6、s copyright 2001 by Harcourt,Inc.Economists study.uHow people make decisions.uHow people interact with each other.uThe forces and trends that affect the economy as a whole.Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.Ten Principles of Economics1.People face tradeoffs.2.The cos
7、t of something is what you give up to get it.3.Rational people think at the margin.4.People respond to incentives.How People Make DecisionsHarcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.Ten Principles of Economics5.Trade can make everyone better off.6.Markets are usually a good
8、way to organize economic activity.7.Governments can sometimes improve economic outcomes.How People InteractHarcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.Ten Principles of Economics8.The standard of living depends on a countrys production.9.Prices rise when the government prints
9、 too much money.10.Society faces a short-run tradeoff between inflation and unemployment.How the Economy as a Whole WorksHarcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.1.People face tradeoffs.“There is no such thing as a free lunch!”Harcourt,Inc.items and derived items copyright
10、 2001 by Harcourt,Inc.1.People face tradeoffs.To get one thing,we usually have to give up another thing.u Guns v.butteru Food v.clothingu Leisure time v.worku Efficiency v.equityMaking decisions requires trading off one goal against another.Harcourt,Inc.items and derived items copyright 2001 by Harc
11、ourt,Inc.1.People face tradeoffs.uEfficiency means society gets the most that it can from its scarce resources.uEquity means the benefits of those resources are distributed fairly among the members of society.Efficiency v.EquityHarcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.2.Th
12、e cost of something is what you give up to get it.Decisions require comparing costs and benefits of alternatives.uWhether to go to college or to work?uWhether to study or go out on a date?uWhether to go to class or sleep in?Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.2.The co
13、st of something is what you give up to get it.The opportunity cost of an item is what you give up to obtain that item.Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.3.Rational people think at the margin.Marginal changes are small,incremental adjustments to an existing plan of ac
14、tion.People make decisions by comparing costs and benefits at the margin.Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.4.People respond to incentives.uMarginal changes in costs or benefits motivate people to respond.uThe decision to choose one alternative over another occurs wh
15、en that alternatives marginal benefits exceed its marginal costs!Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.LA Laker basketball star Kobe Bryant chose to skip college and go straight to the NBA from high school when offered a$10 million contract.4.People respond to incentive
16、s.Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.5.Trade can make everyone better off.uPeople gain from their ability to trade with one another.uCompetition results in gains from trading.uTrade allows people to specialize in what they do best.Harcourt,Inc.items and derived items
17、 copyright 2001 by Harcourt,Inc.6.Markets are usually a good way to organize economic activity.uIn a market economy,households decide what to buy and who to work for.uFirms decide who to hire and what to produce.Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.6.Markets are usuall
18、y a good way to organize economic activity.Adam Smith made the observation that households and firms interacting in markets act as if guided by an“invisible hand.”Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.6.Markets are usually a good way to organize economic activity.uBecau
19、se households and firms look at prices when deciding what to buy and sell,they unknowingly take into account the social costs of their actions.uAs a result,prices guide decision makers to reach outcomes that tend to maximize the welfare of society as a whole.Harcourt,Inc.items and derived items copy
20、right 2001 by Harcourt,Inc.7.Governments can sometimes improve market outcomes.When the market fails(breaks down)government can intervene to promote efficiency and equity.Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.7.Governments can sometimes improve market outcomes.Market fa
21、ilure occurs when the market fails to allocate resources efficiently.Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.7.Governments can sometimes improve market outcomes.Market failure may be caused by an externality,which is the impact of one person or firms actions on the well-b
22、eing of a bystander.Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.7.Governments can sometimes improve market outcomes.Market failure may also be caused by market power,which is the ability of a single person or firm to unduly influence market prices.Harcourt,Inc.items and deriv
23、ed items copyright 2001 by Harcourt,Inc.8.The standard of living depends on a countrys production.Standard of living may be measured in different ways:uBy comparing personal incomes.uBy comparing the total market value of a nations production.Harcourt,Inc.items and derived items copyright 2001 by Ha
24、rcourt,Inc.8.The standard of living depends on a countrys production.Almost all variations in living standards are explained by differences in countries productivities.Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.8.The standard of living depends on a countrys production.Produc
25、tivity is the amount of goods and services produced from each hour of a workers time.Higher productivity Higher standard of livingHarcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.9.Prices rise when the government prints too much money.Inflation is an increase in the overall level
26、of prices in the economy.uOne cause of inflation is the growth in the quantity of money.uWhen the government creates large quantities of money,the value of the money falls.Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.10.Society faces a short-run tradeoff between inflation and
27、unemployment.The Phillips Curve illustrates the tradeoff between inflation and unemployment:Inflation UnemploymentIts a short-run tradeoff!Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.SummaryuWhen individuals make decisions,they face tradeoffs.uRational people make decisions b
28、y comparing marginal costs and marginal benefits.Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.SummaryuPeople can benefit by trading with each other.uMarkets are usually a good way of coordinating trades.uGovernment can potentially improve market outcomes.Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.SummaryuA countrys productivity determines its living standards.uSociety faces a short-run tradeoff between inflation and unemployment.
