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.



Sunday, July 25, 2010

Flatulence Tax


Aplia Econ Blog: News for Economics Students: Bovine Intervention
In an extreme case of externalities, farmers in Europe are levied a tax on their cows because of the methane released when the bovine...uh, you know...fart. Cows are considered significant contributors to the greenhouse gases that impact our atmosphere, but this pigovian maneuver has farmers steamed.
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