This document outlines key concepts in economics including:
- Incentives influence individual and group behavior and decisions. Changing incentives alters behavior.
- Resources are scarce because our desires are unlimited, so we must make choices and trade-offs.
- Voluntary exchange through trade benefits both parties by moving goods to higher-valued uses and allowing specialization. It also reduces costs through mass production.
- Profits reward productive use of resources and wealth creation for producers and consumers. Losses discourage less productive uses of resources.
This document outlines key concepts in economics including:
- Incentives influence individual and group behavior and decisions. Changing incentives alters behavior.
- Resources are scarce because our desires are unlimited, so we must make choices and trade-offs.
- Voluntary exchange through trade benefits both parties by moving goods to higher-valued uses and allowing specialization. It also reduces costs through mass production.
- Profits reward productive use of resources and wealth creation for producers and consumers. Losses discourage less productive uses of resources.
This document outlines key concepts in economics including:
- Incentives influence individual and group behavior and decisions. Changing incentives alters behavior.
- Resources are scarce because our desires are unlimited, so we must make choices and trade-offs.
- Voluntary exchange through trade benefits both parties by moving goods to higher-valued uses and allowing specialization. It also reduces costs through mass production.
- Profits reward productive use of resources and wealth creation for producers and consumers. Losses discourage less productive uses of resources.
What Everyone Should Know About Wealth & Prosperity
by James Gwartney, Richard Stroup, and Dwight Lee
10 Key Elements of Economics CommonSenseEconomics.com Provide an introductory flavor for the course
Bridge between common sense & basic principles of economics
Begin to help you think like an economist
Provide some explanation as to why our economy and our world work the way they do Incentives are the costs and benefits of making specific decisions.
Changing incentives alters peoples behavior.
Incentives operate on all levels- personal, familial, industry and societal level. When the price of gas rises, do you change your behavior?
Do you really?
Whats the difference between short-run changes and long-run changes in behavior? Incentives dont matter only to the greedy and selfish.
What incentives do volunteers have, if not monetary?
Why do you volunteer? Does wearing a seat belt create any incentives?
Why do people get in more accidents now that cars are safer?
Our resources are limitedbut our desire for goods & services is NOT.
When production costs are high, it is because the resource in question is desired for other purpose(s) as well.
A resource is scarce if it has more than one valuable use. Because we are constantly faced with scarcity, we must make choices.
Every time we choose one thing (material or not) we refuse something else.
We constantly make trade- offs in our decisions. What if someone else buys your lunch?
Merely a shifting of cost, not an elimination
And is it really free?
Few, if any, decisions are all-or-nothing. Marginal means additional Marginalism is seldom ignored in our personal decisions, but frequently in our conversations and in politics. To get the most out of our resources, we should only take an action when the marginal benefits are greater than the marginal costs. Marginal Decision Examples How clean is your house? Do you clean to 100% cleanliness? How about when company is coming? How about when selling your house? You clean to the point where the marginal costs outweigh the expected marginal benefits! People gain when they trade Trade moves goods from people who value them less to people who value them more.
Trade makes larger outputs/consumption possible as we specialize.
Voluntary exchange allows production costs to fall through mass production. Trade exists at many levels Enrolling in this class
Shopping at Safeway
Having a garage sale
Taking a vacation
Buying imports from China & Mexico
Spending resources on: Searching out trading partners Searching out product information Negotiating terms of trade Closing sales Why do we experience transaction costs? Physical objects Cant get there from here! Lack of information Finding sellers/ best deals Political obstacles Taxes, tariffs, licensing requirements, regulations, etc. Role of middlemen? Increase or decrease TC?
Why profits are not the enemy People of a nation are better off if their resources produce valuable goods & services. Less productive use of resources should thus be discouraged. This is the function of profits and losses. Profit is a reward for transforming resources into something of greater value. A T-shirt factory has total production costs of $20,000. 1,000 T-shirts sold at $22 each = $2,000 in profit. Wealth has been created for the producer and consumer. What if shirts can only be sold for $17 each? T-shirts are worth less to consumers than the resources required to produce them. Whats the trade-off if firms continue to operate at a loss? People are different in many waysThis is our greatest asset! Differences in income arise because they affect the value of goods and services individuals are willing to provide. There is a direct link (ceteris paribus) between helping others & income. If you want a large income- figure out how to help others!!! College students are rewarded for studying Star athletes and entertainers are rewarded for their special skills Entrepreneurs are rewarded for their innovations.
What is Economic Progress? Americans produce and earn THIRTY TIMES as much as they did in 1750. Why are Americans so much more productive today than they were 250 years ago? Why is economic progress important?
Sources of Economic Growth Investments in productive assets Tools, machines, human capital
Improvements in technology Internal combustion engine, electricity, computers, by-pass surgeries, etc.
Improvements in economic organization Legal system, competitive markets, etc. Adam Smith, The Wealth of Nations (1776) It is his own advantage, indeed, and not that of society which he has in his view. But the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to societyHe intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was not part of his intention. Primary function of markets is to provide information (both to buyers and sellers) Consider the price of apples Price indicative of what consumers are willing and able to pay, but also incorporates costs of production/bringing to market Things constantly happen to make both consumer value & production costs vary Perhaps the most common source of economic error. Actions often promote secondary effects. Tariffs & quotas to protect domestic industries Paying for pencils in the 2 nd grade class