PowerPoint Lecture Presentation

to accompany

Principles of Economics, Third Edition

N. Gregory Mankiw
Prepared by Mark P. Karscig, Central Missouri State University.

Economic Science

Copyright 2004 South-Western/Thomson Learning

TEN PRINCIPLES OF ECONOMICS

Society and Scarce Resources:
The management of societys resources is important because resources are scarce. Scarcity. . . means that society has limited resources and therefore cannot produce all the goods and services people wish to have.

Copyright 2004 South-Western/Thomson Learning

TEN PRINCIPLES OF ECONOMICS

Economics is: The study of human action: acting people use means (resources) in order to reach a goal (need)
People have:
infinite needs finite means

The study of how society manages its scarce resources.

Copyright 2004 South-Western/Thomson Learning

Definition of Economics
Economics is the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices.

Copyright 2004 South-Western/Thomson Learning

Fundamental principles of economics

Human action Scarcity, Choice, Rationality: people compare benefits and costs of various actions Goals are not important (they are subjective) Time: action in the passing of time Uncertainty: Human action end with profit or loss

Copyright 2004 South-Western/Thomson Learning

POSITIVE VERSUS NORMATIVE ANALYSIS

Positive statements are statements that attempt to

describe the world as it is.

Called descriptive analysis Normative statements are statements about how

the world should be.

Called prescriptive analysis

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POSITIVE VERSUS NORMATIVE ANALYSIS

Positive or Normative Statements?
An increase in the minimum wage will cause a decrease in employment among the least-skilled. POSITIVE

Higher federal budget deficits will cause interest rates to increase. POSITIVE

Copyright 2004 South-Western/Thomson Learning

POSITIVE VERSUS NORMATIVE ANALYSIS

Positive or Normative Statements?
The income gains from a higher minimum wage are worth more than any slight reductions in employment. NORMATIVE
State governments should be allowed to collect from tobacco companies the costs of treating smoking-related illnesses among the poor. NORMATIVE

Copyright 2004 South-Western/Thomson Learning

Economics: A Social Science

Obstacles and Pitfalls in Economics
Economists cannot easily do experiments and most economic behavior has many simultaneous causes. To isolate the factor of interest, economists use the logical device called ceteris Paribus or other things being equal. Economists try to isolate cause-and-effect relationship by changing only one variable at a time, holding all other relevant factors unchanged.

Copyright 2004 South-Western/Thomson Learning

Economics: A Social Science

Obstacles and Pitfalls in Economics
Economists try to avoid two common fallacies: Fallacy of Composition A false statement that says what is true of the parts is true of the whole or what is true of the whole is true of the parts. Post Hoc Fallacy From the Latin term Post hoc, ergo propter hoc, which means after this, therefore because of this. The error of reasoning that a first event causes a second event because the first occurs before the second.
Copyright 2004 South-Western/Thomson Learning

Economics vs. other disciplines

Economics Psychology.
Economists study the consequences of human actions, not its reasons

Economics Management
Economists dont know how to make money!

Economics Ethics.
Economists dont tell people how they should behave

Copyright 2004 South-Western/Thomson Learning