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Principles of EconomicsPart1 Introduction

1 Ten Principles of Economics

2009/11/29(Sun)

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What is Economics?

•  Economics is a study of mankind in the ordinary business of life.(Alfred Marshall)

•  Economics is a study of how society manages its resourcs.(N.Gregory Mankiw)

•  The study of economics has many facets,but it is unified by several central ideas.

→Ten Principles　of Economics

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Why we should study Economics

•  It will help you understand the world in which you live.

•  It will make you a more astute participant in the economy.

•  It will give you a better understanding of both the potential and limits ofs economic policy.

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Ten Principles of Economics

Ⅰ.How People Make Decisions. 1:People Face Trade-offs. 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.

Ⅱ.How People Interact. 5:Trade Can Make Everyone Better Off. 6:Markets Are Usually a Goodway to Organize Economic Activity. 7:Governments Can Sometimes Improve Market Outcomes.

Ⅲ.How the Economy as a Whole Works 8:A Country's Standard of Living Depends on its Ability to Produce Goods and

Services. 9:Prices Rise When the Government Prints Too Much Money. 10:Society Faces a Short-Run Trade-off between Inflation and Umemployment.

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1:People Face Trade-offs

q There ain't no such things as a free lunch.

Ø Making decisions requires trading off one goal against another.

①Guns(national defenses)

　 ⇔Butter(consumer goods)

②Clean environment(high costs)

⇔High level of income(high profit)

③Efficiency（the size of economic pie)

　 ⇔Equality(how the pie is divided into individual slices)

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2:The Cost of Something Is What You Give Up to Get It

q When people face trade off, how they make desicions?

Ø Making decision requires comparing the costs and benefits of alternative courses of action.

Ø When making any decisions,decision makers shuold

be aware of the opportunity costs that accompany

each possible action.

Opportunity cost:

whatever must be given up to obtain some item.

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3:Rational People Think at the Margin

q How shuold we compare benefits and costs? Ø  Rational people often make decisions by comparing marginal

benefits and marginal costs.

Ø  A rational decision maker takes an action if and only if the marginal benefit of the action exceeds the marginal cost.

ex) Why is water so cheap,while diamonds are so expensive? rational people : people who systematically and purposefully do the best they can to achive their objectives.Are people really act rationally??→Behaviour Economics.

marginal changes: small incremental adjustments to a plan of action.

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4:People Respond to Incentives

q What induces a person who make decisions by comparing costs and benefits to act?

Ø  People respond to incentives.The rest is commentary. ex)

-A tax on on gasolin encourage people to drive smaller.

-How seat belt law affect auto safety?

-When analyzing any policy ,we must consider not only the direct

effects but also the less obvious indirect effects that work through

incentives.

incentive:

something that induces a person to act.

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5:Trade Can Make Everyone Better Off

q Why can trade between two countries can make each country better off?

Ø  Trade allows each person to specialize in the activities he or she does best.

Ø  By trading with others,people can buy a greater variety of goods and services at lower cost.

※Many countries are as much our partners in

the world economy as they are our competitiors.

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6:Markets Are Usually a Goodway to Organize Economic Activity

q Who allocates the economy's scarce resources mainly?

Ø Command economy

→Goverment(a central planner "visible hand")

Ø Markect economy

→Millions of firms and households("invisible hand")

※Prices adjust to guide these individual buyers and

sellers to reach out comes that maximaize the well-being

of society as a whole.

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7:Governments Can Sometimes Improve Market Outcomes.

q Why do we need government?

Ø  The invisible hand can work its magic only if the government enforces the rules and maintains the institutions.(ex. property rights)

Ø  A government can intervene in the economy and change the allocation of resources.

→①To promote efficiency(market failure,externality)

　②To promote equality(income tax, welfare system)

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8:A Country's Standard of Living Depends on its Ability to Produce Goods and Services.

q What explains large differences in living standards among countries and over time?

Ø  Productivity:the quantity of goods and services produced from each unit of labor input.

Ø  To boost living standards,policymakers need to raise productivity by ensuring that workers

-①are well educated.

-②have the tools needed to produce goods and serveice

-③have access to the best available technology.

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9:Prices Rise When the Government Prints Too Much Money.

q What causes Inflation?

Ø  The high inflation of the 1970s was associated with rapid growth in the quantity of money.

Ø  The low inflation of more recent experience was associated with slow growth in the quantity of money.

※Can a central bank cause inflation by inflation targetting when the economy is in deflation?

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10:Society Faces a Short-Run Trade-off

between Inflation and Umemployment

q What is the primary effect of increasing the quantity of

money in the short-run?

Ø  Increasing the amount of money stimulates the overall level of spending.

Ø Higher demand encourage firmes to here more workers.

Ø More hiring means lower unemployment.

※　Many economic policies push inflation and unemployment in opposit

direction.Policy maker face this trade off regardless of whether inflation and unemployment both start out

①at high levels(in the early 1980s)

②at low levels(in the late 1990s)

③some place in between

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Ten Principles of Economics Again

Ⅰ.How People Make Decisions. 1:People Face Trade-offs. 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.

Ⅱ.How People Interact. 5:Trade Can Make Everyone Better Off. 6:Markets Are Usually a Goodway to Organize Economic Activity. 7:Governments Can Sometimes Improve Market Outcomes.

Ⅲ.How the Economy as a Whole Works 8:A Country's Standard of Living Depends on its Ability to Produce Goods and

Services. 9:Prices Rise When the Government Prints Too Much Money. 10:Society Faces a Short-Run Trade-off between Inflation and Umemployment.

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Revised in the teaching of basic economics in response to recent events

•  The role of financial institutions

•  The effects of leverage

•  The limits of monetary policy

•  The challenge of forecasting

from NY times"That Freshman Course Won’t Be Quite the Same "

http://www.nytimes.com/2009/05/24/business/economy/24view.html?_r=1

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Relevant literature

How People Make Decisions •  ハロルド・ウィンター (著), 山形浩生 (翻訳) (2009)『人でなしの経済理論-トレードオフの経済学』 バジリコ •  スティーヴン・レヴィット (著), スティーヴン・ダブナー (著), 望月 衛 (翻訳)(2006)『ヤバい経済学 ─悪ガキ

教授が世の裏側を探検する 』 東洋経済新報社 •  ティム・ハーフォード (著), 遠藤 真美 (翻訳) (2006)『まっとうな経済学』ランダムハウス講談社 •  タイラー・コーエン (著), 高遠 裕子 (翻訳) (2009)『インセンティブ 自分と世界をうまく動かす』日経BP社 •  大竹文雄(2005)『経済学的思考のセンス―お金がない人を助けるには』中公新書 •  スティーヴン ランズバーグ (著), 吉田 利子 (翻訳)(2004)「ランチタイムの経済学」日本経済新聞社

How People Interact •  Russelle D. Roberts (原著), 佐々木 潤 (翻訳) (1999)『寓話で学ぶ経済学―自由貿易はなぜ必要か』日本

経済新聞社 •  Russell Roberts (原著), 沢崎 冬日 (翻訳) (2003)『インビジブルハート―恋におちた経済学者』日本評論

者 •  大竹文雄(2005)『日本の不平等』日本経済新聞社

How the Economy as a Whole Works •  竹中平蔵(2003)『あしたの経済学』幻冬舎 •  櫻川 昌哉 (2006)『金融立国試論』光文社 •  ベン・バーナンキ (著), 高橋 洋一 (翻訳) (2004)『リフレと金融政策』日本経済新聞社 •  岩田 規久男(1993)『金融政策の経済学―「日銀理論」の検証』日本経済新聞社 •  翁 邦雄(1993)『金融政策―中央銀行の視点と選択』東洋経済新報社