Ten Key Principles of Economics

1. Everything has a cost. There is no free lunch. There is always a trade-off.
2. Cost is what you give up to get something. In particular, opportunity cost is cost of the tradeoff.
3. One More. Rational people make decisions on the basis of the cost of one more unit (of consumption, of investment, of labor hour, etc.).
4. Incentives work. People respond to incentives.
5. Open for trade. Trade can make all parties better off.
6. Markets Rock! Usually, markets are the best way to allocate scarce resources between producers and consumers.
7. Intervention in free markets is sometimes needed. (But watch out for the law of unintended effects!)
8. Concentrate on productivity. A country’s standard of living depends on how productive its economy is.
9. Sloshing in money leads to higher prices. Inflation is caused by excessive money supply.!!
10. Caution: In the short run, falling prices may lead to unemployment, and rising employment may lead to inflation.



Tuesday, June 22, 2010

Price Gouging?

As hurricane season arrives, we harken back on some of the harsher experiences and hope they never revisit. Inevitably we'll be scrambling for supplies in the wake of a big one and the less prepared among us may face a dose of sticker shock when looking for plywood or ice. Are the seemingly exorbinant prices gouging or simply a manifestation of market forces? Do we really want legislation against "gouging"? This article discusses the ramifications.
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