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    Session 1. Seven Principles of Economics

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    Elec Az
    This document provides an overview and introduction to a course on principles of microeconomics. It begins with welcoming students and providing context about the course structure and expectations. It then outlines seven key principles of economics: 1) People face tradeoffs, 2) The cost of something is what you give up to get it, 3) Rational people think at the margin, 4) People respond to incentives, 5) Trade can make everyone better off, 6) Markets are usually a good way to organize economic activity, and 7) Governments can sometimes improve market outcomes. Examples are provided for each principle. The document encourages student participation and questions.

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Session 1. Seven Principles of Economics

    Uploaded by

    Elec Az
    26 views15 pages
    This document provides an overview and introduction to a course on principles of microeconomics. It begins with welcoming students and providing context about the course structure and expectations. It then outlines seven key principles of economics: 1) People face tradeoffs, 2) The cost of something is what you give up to get it, 3) Rational people think at the margin, 4) People respond to incentives, 5) Trade can make everyone better off, 6) Markets are usually a good way to organize economic activity, and 7) Governments can sometimes improve market outcomes. Examples are provided for each principle. The document encourages student participation and questions.

    Original Title

    Session 1. Seven principles of Economics(1) (1)

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    This document provides an overview and introduction to a course on principles of microeconomics. It begins with welcoming students and providing context about the course structure and expectations. It then outlines seven key principles of economics: 1) People face tradeoffs, 2) The cost of something is what you give up to get it, 3) Rational people think at the margin, 4) People respond to incentives, 5) Trade can make everyone better off, 6) Markets are usually a good way to organize economic activity, and 7) Governments can sometimes improve market outcomes. Examples are provided for each principle. The document encourages student participation and questions.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    26 views15 pages

    Session 1. Seven Principles of Economics

    Uploaded by

    Elec Az
    This document provides an overview and introduction to a course on principles of microeconomics. It begins with welcoming students and providing context about the course structure and expectations. It then outlines seven key principles of economics: 1) People face tradeoffs, 2) The cost of something is what you give up to get it, 3) Rational people think at the margin, 4) People respond to incentives, 5) Trade can make everyone better off, 6) Markets are usually a good way to organize economic activity, and 7) Governments can sometimes improve market outcomes. Examples are provided for each principle. The document encourages student participation and questions.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 15

    Principles of

    Microeconomics
    Rashad Hasanov
    Introduction
    • Welcome to the course!
    • About myself
    • Course overview
    • Grading
    • Textbook
    • Provisional syllabus
    • Questions? Raise your hand
    • Other matters
    Seven principles of economics
    What is Economics?

    Let’s hear from you!


    What is Economics
    • The word economy comes from Greek word “oikonomos” and stands for “one who manages a household”
    • Households vs. society: decisions to be made!
    • Economics is the study of how the society makes decisions
     What goods and services should be produced?
     How should these goods and services be produced?
     Who should get the goods and services that have been produced?
    • Why is this so hard?
    Scarcity is the problem! Trade-off is the solution!
    How do people make decisions
    • Principle 1: People Face Trade-offs
    • Making decisions
    • Trade off one goal against another
    • Individual trade-off
     allocation of time
     allocation of money
    • Society
     National defense vs. building road
     Clean environment vs. many factories
     Increasing unemployment benefits: what is the problem there?
     Tell me a trade-off you face?
    How do people make decisions
    • Principle 2: The Cost of Something is What You Give Up to Get It
    • Trade-offs mean making a decision to choose one outcome over the
    alternative
    • Example: spending 10 manats for lunch vs. bringing lunch from home
    • Another example: spending your time on this class vs. sleeping in
    • What is the cost of studying at ADA?
    • Concept of opportunity cost
    The opportunity cost of an item is what you give up to get that item
    How do people make decisions
    • Principle 3: Rational People Think at the Margin
    • People are rational
     Systematically & purposefully do the best they can to achieve their objectives
    • Marginal changes
     Small incremental adjustments to a plan of action
    • Concept of sunk cost
     A cost that has already been incurred and cannot be recovered
    • Rational decision maker
     Take action only if marginal benefits > marginal costs. Example of plane flying
    with empty seat.
    How do people make decisions
    • Principle 4: People respond to incentives
    • Incentive
     Something that induces a person to act
     Higher price
    • Buyers - consume less
    • Sellers - produce more
     Public policy
    • Change costs or benefits
    • Change people’s behavior: tax on petrol changes the behavior!
    • Peltzman’s study on seatbelt
    How do people interact
    • Principle 5: Trade Can Make Everyone Better Off
    • Trade
     No zero-sum game
     Specialization
    • Allows each person/country to specialize in the activities he/she does best
     People/countries can buy a greater variety of goods and services at lower
    cost
    How do people interact
    • Principle 6: Markets Are Usually a Good Way to Organize Economic
    Activity
    • Central planning vs. free markets
    • Government officials (central planners)
     Allocate economy’s scarce resource and decided
    • What goods & services were produced
    • How much was produced
    • Who produced & consumed these goods & services

    • Majority of countries are market economies


    • Invisible hands vs government distorting incentives
    Adam Smith and the Invisible Hand
    • “Every individual … neither intends to
    promote the public interest, nor knows
    how much he is promoting it. … He
    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 no part of his intention.”
    • “It is not from the benevolence of the
    butcher, the brewer, or the baker that we
    expect our dinner, but from their regard to
    their own self-interest.”
    How do people interact
    • Principle 7: Governments Can Sometimes Improve Market
    Outcomes
    • Why do we need government?
     Enforce the rules
     Promote equity and efficiency
     Market failure
    • Externality: Impact of one person’s actions on the well-being of a bystander
    • Market power: Ability of a single person (or small group) to unduly influence market
    prices
    Questions?

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