Econ_100_Ch1 (1)

Econ_100_Ch1 (1) - ECON 100: Introduction to Microeconomic...

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Slide 1 of 14 ECON 100: Introduction to Microeconomic Theory Lecture 2 Yilan Xu
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Slide 2 of 14 Big Ideas in Economics The Big Ideas: 1. Incentives matter 2. Good institutions align self-interest with the social interest 3. Trade-offs are everywhere 4. Thinking on the margin 5. Tampering with the laws of supply and demand has consequences
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Slide 3 of 14 Big Ideas in Economics The Big Ideas: 6. The importance of wealth and economic growth 7. Institutions matter 8. Economic booms and busts cannot be avoided but can be moderated 9. Prices rise when the government prints too much money 10. Central banking is a hard job
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Slide 4 of 14 Big Idea One: Incentives Matter 1. Incentives Matter § Incentives are rewards and penalties that motivate behavior. § Economists believe that people respond to incentives in predictable ways. § Self-interest is an extremely important incentive in economics.
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Slide 5 of 14 Big Idea Two: Good Institutions Align Self-Interest with the Social Interest 2. Good institutions align self-interest with the social interest § Under the right conditions, markets align self- interest with the social interest. § When markets work well, individuals acting in their own self-interest produce outcomes promoting the social interest. § Markets do not always align self-interest with the social interest creating an opportunity for government to improve the situation by changing incentives.
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Big Idea Three: Trade-offs Are Everywhere 3. Trade-offs are everywhere § All economic activity involves choices of conflicting objectives.
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Econ_100_Ch1 (1) - ECON 100: Introduction to Microeconomic...

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