Seven Principles of Economics

When you join the economics association on campus, you get a free t-shirt and some pizza. But, in order to get those free things you must give up your time for club meetings.

• Principle 1: People face tradeoffs

• Principle 10: Society faces a short-run tradeoff between inflation and unemployment

• Principle 5: Trade can make everyone better off

• Principle 3: Rational people think at the margin

Emily considers how much more time she would have to spend studying to increase her midterm grade by 2%

• Principle 7: Governments can sometimes improve market outcomes

• Principle 2: the cost of something is what you give up to get it

• Principle 3: Rational people think at the margin

• Principle 8: A country's standard of living depends on its productivity

The United States is more productive than Australia, which means that the United States is a wealthier country.

• Principle 1: People face tradeoffs

• Principle 7: Governments can sometimes improve market outcomes

• Principle 8: A country's standard of living depends on its ability to produce goods and services

• Principle 9: Prices rise when the government prints too much money

The Scottish government decides to print more money, and the price of milk rices from $1 a gallon to $4 a gallon

• Principle 5: Trade can make everyone better off

• Principle 2: The cost of something is what you give up to get it

• Principle 4: People respond to incentives

• Principle 9: Prices rise when the government prints too much money

Adam Smith said that the "invisible hand" controls the market and creates the optimal outcome

• Principle 1: people face tradeoffs

• Principle 3: Rational people think at the margin

• Principle 6: Markets are usually a good way of organizing economic activity

• Principle 9: Prices rise when the government prints too much money

The government prints more money to stimulate the economy and create more jobs, but the price of milk increases from $1 to $4.

• Principle 9: Prices rise when the government prints too much money

• Principle 5: Trade can make everyone better off

• Principle 10: Society faces a short run tradeoff between inflation and unemployment

• Principle 3: Rational people think at the margin

Scarcity & Opportunity Cost

• Principle 1: People want. This is why the economy exists.

• Principle 2: You can't always get what you want.  You have to make a decision.

• Principle 3: Economics requires that we rely on all people.

• Principle 4: Supply and Demand = Price

A country decides to invest in education to improve its workforce skills, expecting long-term economic growth.

• Principle 1: People face tradeoffs

• Principle 8: A country's standard of living depends on its productivity

• Principle 5: Trade can make everyone better off

• Principle 3: Rational people think at the margin

A farmer decides to plant more corn instead of wheat because corn prices have increased.

• Principle 4: People respond to incentives

• Principle 2: The cost of something is what you give up to get it

• Principle 6: Markets are usually a good way of organizing economic activity

• Principle 9: Prices rise when the government prints too much money

A company decides to outsource production to another country where labor is cheaper.

• Principle 5: Trade can make everyone better off

• Principle 1: People face tradeoffs

• Principle 7: Governments can sometimes improve market outcomes

• Principle 3: Rational people think at the margin