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1、PowerPoint Lecture Presentation to accompany Principles of Economics, Third Edition N. Gregory MankiwPrepared by Mark P. Karscig, Central Missouri State University.1 INTRODUCTIONCopyright 2004 South-Western/Thomson Learning1 1Ten Principles of EconomicsCopyright 2004 South-Western/Thomson LearningEc
2、onomy. . . . . The word economy comes from a Greek word for “one who manages a household.”Copyright 2004 South-Western/Thomson LearningTEN PRINCIPLES OF ECONOMICS A household and an economy face many decisions: Who will work? What goods and how many of them should be produced? What resources should
3、be used in production? At what price should the goods be sold?Copyright 2004 South-Western/Thomson LearningTEN PRINCIPLES OF ECONOMICSSociety and Scarce Resources: The management of societys resources is important because resources are scarce. Scarcity. . . means that society has limited resources a
4、nd therefore cannot produce all the goods and services people wish to have.Copyright 2004 South-Western/Thomson LearningTEN PRINCIPLES OF ECONOMICSEconomics is the study of how society manages its scarce resources. Copyright 2004 South-Western/Thomson LearningTEN PRINCIPLES OF ECONOMICS How people m
5、ake decisions. People face tradeoffs. The cost of something is what you give up to get it. Rational people think at the margin. People respond to incentives.Copyright 2004 South-Western/Thomson LearningTEN PRINCIPLES OF ECONOMICS How people interact with each other. Trade can make everyone better of
6、f. Markets are usually a good way to organize economic activity. Governments can sometimes improve economic outcomes.Copyright 2004 South-Western/Thomson LearningTEN PRINCIPLES OF ECONOMICS The forces and trends that affect how the economy as a whole works. The standard of living depends on a countr
7、ys production. Prices rise when the government prints too much money. Society faces a short-run tradeoff between inflation and unemployment.Copyright 2004 South-Western/Thomson LearningPrinciple #1: People Face Tradeoffs.“There is no such thing as a free lunch!”Copyright 2004 South-Western/Thomson L
8、earningMaking decisions requires trading off one goal against another.Principle #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. equityCopyright 2004 South-Western/Thomson LearningPrinciple #1: Pe
9、ople Face Tradeoffs Efficiency v. Equity Efficiency means society 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.Copyright 2004 South-Western/Thomson LearningPrinciple #2: The Cost of Something Is
10、What You Give Up to Get It. Decisions require comparing costs and benefits of alternatives. Whether to go to college or to work? Whether to study or go out on a date? Whether to go to class or sleep in? The opportunity cost of an item is what you give up to obtain that item.Copyright 2004 South-West
11、ern/Thomson LearningPrinciple #2: The Cost of Something Is What You Give Up to Get It.LA Laker basketball star Kobe Bryant chose to skip college and go straight from high school to the pros where he has earned millions of dollars.Copyright 2004 South-Western/Thomson LearningPeople make decisions by
12、comparing costs and benefits at the margin.Principle #3: Rational People Think at the Margin. Marginal changes are small, incremental adjustments to an existing plan of action.Copyright 2004 South-Western/Thomson LearningPrinciple #4: People Respond to Incentives. Marginal changes in costs or benefi
13、ts motivate people to respond. The decision to choose one alternative over another occurs when that alternatives marginal benefits exceed its marginal costs!Copyright 2004 South-Western/Thomson LearningPrinciple #5: Trade Can Make Everyone Better Off. People gain from their ability to trade with one
14、 another. Competition results in gains from trading. Trade allows people to specialize in what they do best.Copyright 2004 South-Western/Thomson LearningPrinciple #6: Markets Are Usually a Good Way to Organize Economic Activity. A market economy is an economy that allocates resources through the dec
15、entralized decisions of many firms and households as they interact in markets for goods and services. Households decide what to buy and who to work for. Firms decide who to hire and what to produce. Copyright 2004 South-Western/Thomson LearningPrinciple #6: Markets Are Usually a Good Way to Organize
16、 Economic Activity. Adam Smith made the observation that households and firms interacting in markets act as if guided by an “invisible hand.” Because households and firms look at prices when deciding what to buy and sell, they unknowingly take into account the social costs of their actions. As a res
