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, August 1, 2010

Price Holds The Key


Click on the title and you'll access a passionate plea for more substance in the efforts to wean Americans off of oil. The opinion here is to raise prices through heftier gas taxes based on the assumption that high prices create disincentives and motivates to seek alternatives. At this stage, gas taxes are lower than they've been at anytime over the last 40 years (adjusted for inflation). The implementation would be painful, but price is almost always a market changer.
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