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1、*,Click to edit Master title style,Click to edit Master text styles,Second Level,Third Level,Fourth Level,Fifth Level,Harcourt,Inc.items and derived items copyright 2001 by Harcourt,Inc.,A Lecture Presentation in PowerPoint to Accompany,Principles of Economics,Second Edition,by,N.Gregory Mankiw,Prep
2、ared by Mark P.Karscig,Department of Economics&Finance,Central Missouri State University.,Ten Principles of Economics,Chapter 1,Copyright 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 Colle
3、ge Publishers,6277 Sea Harbor Drive,Orlando,Florida 32887-6777.,Economy.,.The word,economy,comes from a Greek word for“one who manages a household.”,A household and an economy face many decisions:,Who will work?,What goods and how many of them should be produced?,What resources should be used in pro
4、duction?,At what price should the goods be sold?,Society and Scarce Resources:,The management of societys resources is important because resources are scarce.,Scarcity,.,.means that society has limited resources and therefore cannot produce all the goods and services people wish to have.,Economics,E
5、conomics,is the study of how society manages its scarce resources.,Economists study.,How people make decisions.,How people interact with each other.,The forces and trends that affect the economy as a whole.,Ten Principles of Economics,1.People face tradeoffs.,2.The cost of something is what you give
6、 up to get it.,3.Rational people think at the margin.,4.People respond to incentives.,How People Make Decisions,Ten Principles of Economics,5.Trade can make everyone better off.,6.Markets are usually a good way to organize economic activity.,7.Governments can sometimes improve economic outcomes.,How
7、 People Interact,Ten Principles of Economics,8.The standard of living depends on a countrys production.,9.Prices rise when the government prints too much money.,10.Society faces a short-run tradeoff between inflation and unemployment.,How the Economy as a Whole Works,1.People face tradeoffs.,“There
8、is no such thing as a free lunch!”,1.People face tradeoffs.,To get one thing,we usually have to give up another thing.,Guns v.butter,Food v.clothing,Leisure time v.work,Efficiency v.equity,Making decisions requires trading off one goal against another.,1.People face tradeoffs.,Efficiency,means socie
9、ty gets the most that it can from its scarce resources.,Equity,means the benefits of those resources are distributed fairly among the members of society.,Efficiency v.Equity,2.The cost of something is what you give up to get it.,Decisions require comparing costs and benefits of alternatives.,Whether
10、 to go to college or to work?,Whether to study or go out on a date?,Whether to go to class or sleep in?,2.The cost 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.,3.Rational people think at the margin.,Marginal changes,are,small,in
11、cremental adjustments to an existing plan of action.,People make decisions by comparing costs and benefits,at the margin,.,4.People respond to incentives.,Marginal changes in costs or benefits motivate people to respond.,The decision to choose one alternative over another occurs when that alternativ
12、es marginal benefits,exceed,its marginal costs!,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 incentives.,5.Trade can make everyone better off.,People gain from their ability to trade wit
13、h one another.,Competition results in gains from trading.,Trade allows people to specialize in what they do best.,6.Markets are usually a good way to organize economic activity.,In a,market economy,households decide what to buy and who to work for.,Firms decide who to hire and what to produce.,6.Mar
14、kets are usually 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,.”,6.Markets are usually a good way to organize economic activity.,Because households and firms look at prices when deci
15、ding what to buy and sell,they unknowingly take into account the social costs of their actions.,As a result,prices guide decision makers to reach outcomes that tend to maximize the welfare of society as a whole.,7.Governments can sometimes improve market outcomes.,When the market fails(breaks down)g
16、overnment can intervene to promote,efficiency,and,equity.,7.Governments can sometimes improve market outcomes.,Market failure,occurs when the market fails to allocate resources efficiently.,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-being of a bystander.,7.Governments can sometimes improve market outcomes.,Market failure may also be caused by,market power,which,is the ability o