The Core Principles
of Economics
Copyright © 2020 by Macmillan Learning. All rights reserved
PRINCIPLES OF ECONOMICS Betsey Stevenson – Justin Wolfers | First Edition
, Chapter Objective
Learn the four core principles that provide the
foundation of all economic analysis, and use the
four core principles to analyze choices and make
better decisions.
Copyright © 2020 by Macmillan Learning. All rights reserved
2
PRINCIPLES OF ECONOMICS Betsey Stevenson – Justin Wolfers | First Edition
, Roadmap (1 of 5)
▪ A Principled Approach to Economics
▪ Understand economics as a way of thinking, grounded in a set of broadly applicable principles that you’ll
find useful “in the ordinary business of life.”
▪ The Cost-Benefit Principle
▪ Costs and benefits are the incentives that shape decisions. You should evaluate the full set of costs and
benefits of any choice and only pursue those whose benefits are at least as large as their costs.
▪ The Opportunity Cost Principle
▪ The true cost of something is the next best alternative you must give up to get it. Your decisions should
reflect this opportunity cost, rather than just the out-of-pocket financial costs
▪ The Marginal Principle
▪ Decisions about quantities are best made incrementally. You should break “how many” decisions down
Copyright © 2020 by Macmillan Learning. All rights reserved
into a series of smaller or marginal decisions.
▪ The Interdependence Principle
▪ Your best choice depends on your other choices, the choices others make, developments in other
markets, and expectations about the future. When any of these factors change, your best choice might
change.
3
PRINCIPLES OF ECONOMICS Betsey Stevenson – Justin Wolfers | First Edition
, A Principled Approach to Economics
▪ Economics is not just about money!
▪ It is a way of thinking, and the economic approach
can also help you understand politics, families,
careers, and just about every aspect of your life.
Copyright © 2020 by Macmillan Learning. All rights reserved
4
PRINCIPLES OF ECONOMICS Betsey Stevenson – Justin Wolfers | First Edition
of Economics
Copyright © 2020 by Macmillan Learning. All rights reserved
PRINCIPLES OF ECONOMICS Betsey Stevenson – Justin Wolfers | First Edition
, Chapter Objective
Learn the four core principles that provide the
foundation of all economic analysis, and use the
four core principles to analyze choices and make
better decisions.
Copyright © 2020 by Macmillan Learning. All rights reserved
2
PRINCIPLES OF ECONOMICS Betsey Stevenson – Justin Wolfers | First Edition
, Roadmap (1 of 5)
▪ A Principled Approach to Economics
▪ Understand economics as a way of thinking, grounded in a set of broadly applicable principles that you’ll
find useful “in the ordinary business of life.”
▪ The Cost-Benefit Principle
▪ Costs and benefits are the incentives that shape decisions. You should evaluate the full set of costs and
benefits of any choice and only pursue those whose benefits are at least as large as their costs.
▪ The Opportunity Cost Principle
▪ The true cost of something is the next best alternative you must give up to get it. Your decisions should
reflect this opportunity cost, rather than just the out-of-pocket financial costs
▪ The Marginal Principle
▪ Decisions about quantities are best made incrementally. You should break “how many” decisions down
Copyright © 2020 by Macmillan Learning. All rights reserved
into a series of smaller or marginal decisions.
▪ The Interdependence Principle
▪ Your best choice depends on your other choices, the choices others make, developments in other
markets, and expectations about the future. When any of these factors change, your best choice might
change.
3
PRINCIPLES OF ECONOMICS Betsey Stevenson – Justin Wolfers | First Edition
, A Principled Approach to Economics
▪ Economics is not just about money!
▪ It is a way of thinking, and the economic approach
can also help you understand politics, families,
careers, and just about every aspect of your life.
Copyright © 2020 by Macmillan Learning. All rights reserved
4
PRINCIPLES OF ECONOMICS Betsey Stevenson – Justin Wolfers | First Edition
