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.



Thursday, July 8, 2010

The Economics Of Obesity

Should the government give away free Krispy Kreme doughnuts and cigarettes as a cost saving measure? If people don't reach retirement missing out on Social Security and Medicare, does that leave more for the rest of us? This article contains a fascinating interview evaluating the costs of our modern lifestyle. Though obesity is expanding rapidly, the average American has lower blood pressure and cholesterol levels than our more physically taxed ancestors. The market has contributed to our unhealthy existence and is profiting by developing responses. Brilliant.
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