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Adam Smith: The Invisible Hand June 25, 2008

Posted by petrarcanomics in Basic Economic Concepts, Famous Quotes.
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Every individual…generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, 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.

The Wealth of Nations, Book IV Chapter II

Stimulus Check Cartoon June 25, 2008

Posted by petrarcanomics in Cartoons.
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The Four Economic Resources June 25, 2008

Posted by petrarcanomics in Basic Economic Concepts.
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The following are the four basic types of economics resources:

  • Land – natural resources such as iron ore, gold, diamonds, oil, etc.
  • Labor – human resources such as wage-earning workers
  • Capital – plants and equipment used in the production of final goods, such as assembly lines, trucks, heavy duty machinery, factories, etc.
  • Entrepreneurship – the marshaller of resources, the person or group that marshals resources in the production of final goods (Bill Gates, Steve Jobbs, Henry Ford, etc.)

Reffonomics.com has a helpfuil slideshow which explains these concepts further. View it here: http://www.reffonomics.com/TRB/chapter1/resources.swf.

A Definition of Scarcity June 25, 2008

Posted by petrarcanomics in Basic Economic Concepts.
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In economics, scarcity is the problem of infinite human needs and wants, in a world of finite resources. In other words, society does not have sufficient productive resources to fulfill those wants and needs. Alternatively, scarcity implies that not all of society’s goals can be pursued at the same time; trade-offs are made of one good against others. In an influential 1932 essay, Lionel Robbins defined economics as “the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.” (Wikipedia.com)

Mankiw’s “Ten Principles of Economics” June 25, 2008

Posted by petrarcanomics in Basic Economic Concepts.
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The following are ten principles of economics outlined by Gregory N. Mankiw, the author of your textbook. For more economics principles, visit: http://www.slembeck.ch/principles.html. These principles will apply to all of the economic concepts you will study and learn throughout the year.

How People Make Decisions

  • People Face Tradeoffs. To get one thing, you have to give up something else. Making decisions requires trading off one goal against another.
  • The Cost of Something is What You Give Up to Get It. Decision-makers have to consider both the obvious and implicit costs of their actions.
  • Rational People Think at the Margin. A rational decision-maker takes action if and only if the marginal benefit of the action exceeds the marginal cost.
  • People Respond to Incentives. Behavior changes when costs or benefits change.

How the Economy Works as A Whole

  • Trade Can Make Everyone Better Off. Trade allows each person to specialize in the activities he or she does best. By trading with others, people can buy a greater variety of goods or services.
  • Markets Are Usually a Good Way to Organize Economic Activity. Households and firms that interact in market economies act as if they are guided by an “invisible hand” that leads the market to allocate resources efficiently. The opposite of this is economic activity that is organized by a central planner within the government.
  • Governments Can Sometimes Improve Market Outcomes. When a market fails to allocate resources efficiently, the government can change the outcome through public policy. Examples are regulations against monopolies and pollution.

How People Interact

  • A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services. Countries whose workers produce a large quantity of goods and services per unit of time enjoy a high standard of living. Similarly, as a nation’s productivity grows, so does its average income.
  • Prices Rise When the Government Prints Too Much Money. When a government creates large quantities of the nation’s money, the value of the money falls. As a result, prices increase, requiring more of the same money to buy goods and services.
  • Society Faces a Short-Run Tradeoff Between Inflation and Unemployment. Reducing inflation often causes a temporary rise in unemployment. This tradeoff is crucial for understanding the short-run effects of changes in taxes, government spending and monetary policy.