Principles of economics, translated

Economics in 10 easy steps

Ross Gittins, Herald’s Economics Editor, has written a very nice article on principles of economics (HT: Greg Mankiw). He says there are 10 broad principles of economics:

Here’s a never-to-be-repeated holiday special: all you need to know about economics in 10 easy steps. They come courtesy of the best-selling introductory economics textbook by Gregory Mankiw of Harvard University (with Joshua Gans and Stephen King co-authors of the Australian edition).

Economics is the study of how society manages its scarce resources, where ‘’scarce” means there are fewer resources than we’d like to be able to use.

The 10 principles are divided into 3 sections. Here is a further summary of the 10 principles:

* Section 1: How people make decisions?
o Principle 1: Economics is about trade-offs – efficiency vs equity
o Principle 2: Opportunity cost – Joining a Univ vs Working fulltime
o Principle 3: Marginal Thinking – The pricing should be in line with marginal costs
o Principle 4: Incentives matter
* Section 2 : How people interact?
o Principle 5: Trade makes everyone better off
o Principle 6: Markets are a good way to organise economic activity. Central Planning doesn’t work
o Principle 7: Govt can improve market outcomes in case of market failures, market power, spillovers etc
* Section 3: How Economy works?
o Principle 8: Country’s standard of living depends on its ability to produce goods and services.
o Principle 9: Prices rise when the government prints too much money
o Principle 10: Society faces a short-run trade-off between inflation and unemployment

Notice how principles move from ‘within individual’ to ‘between individuals’ to ‘country level economics’.

Very useful summary of principles of economics.