Premium PowerPoint Slides by:
V. Andreea CHIRITESCU
Eastern Illinois University
N. GREGORY MANKIW
PRINCIPLES OF
ECONOMICS
Eight Edition
Ten Principles of
Economics
CHAPTER
1
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use. 1
Look for the answers to these questions:
•What kinds of questions does economics
address?
•What are the principles of how people
make decisions?
•What are the principles of how people
interact?
•What are the principles of how the
economy as a whole works?
2
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
Ten Principles of Economics
•Resources are scarce
•Scarcity: the limited nature of society’s
resources
–Society has limited resources
•Cannot produce all the goods and services
people wish to have
•Economics
–The study of how society manages its
scarce resources
3
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
Ten Principles of Economics
•Economists study:
–How people decide what to buy,
how much to work, save, and spend
–How firms decide how much to produce,
how many workers to hire
–How society decides how to divide its
resources between national defense,
consumer goods, protecting the
environment, and other needs
4
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
How People Make Decisions
Principle 1: People face trade-offs
Principle 2: The cost of something is what
you give up to get it
Principle 3: Rational people think at the
margin
Principle 4: People respond to incentives
5
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
Principle 1: People Face Trade-offs
•To get something that we like, we have to
give up something else that we also like
–Going to a party the night before an exam
•Less time for studying
–Having more money to buy stuff
•Working longer hours, less time for leisure
–Protecting the environment
•Resources could be used to produce
consumer goods
6
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
Principle 1: People Face Trade-offs
•Society faces trade-offs:
–The more it spends on national defense
(guns) to protect its shores
•The less it can spend on consumer goods
(butter) to raise the standard of living at home
–Pollution regulations: cleaner environment
