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.



Monday, July 19, 2010

How Much Would Your Social Conscience Allow You To Pay?


In a previous post I offered an article describing the race to the bottom for wages in the garment industry. This article describes an unusual factory in the Dominican Republic that is bucking the trend and paying a living wage to its workers while freely allowing for unions. The factory makes t-shirts and sweatshirts for over 400 colleges and universities in the U.S., but because of higher labor costs has to charge a premium price for their garments. Many universities have grown uncomfortable with the knowledge that their items are produced in what are perceived to be "sweatshop" conditions. Thus, they applaud the efforts occurring in the Dominican. Many consumers might consider paying extra to support these fair labor practices, but how often does one know the origin of the product? Without effective marketing, many consumers may pass over the unfamiliar brand for the more recognizable logos. Thus, some see this as a noble experiment that will eventually fail. Meanwhile, many garment workers are realizing lifestyles they never thought imaginable.

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