Three Most Important Lessons

I tend to avoid memes, but I’m joining this one invited or not. Hahhhhvawhhhd Economics Professor Greg “Who Needs Big Brother When You Have Pigovian Taxes” Mankiw got this thing going when he answered this question from a reader:

If you could teach every American teacher three economic concepts, what would they be?

His answer was:

  1. Comparative advantage and the gains from trade.
  2. Supply, demand, and the efficiency of market equilibrium.
  3. Market failure, such as externalities, and the role for government.

(Slipped that northeastern elitist social engineering agenda in the backdoor with number three!)

John Palmer thinks all three should be “opportunity costs” or perhaps:

1. Opportunity costs,
2. downward-sloping demand curves, and
3. People respond to incentives.

Craig Newmark has:

1. People tend to respond to incentives.

2. Scarcity, and its important corollary, opportunity cost.

3. Markets tend to be low cost allocators of goods and services.

(I’d put “Voluntary trade is mutually beneficial” at #4.)

Some commenters suggested “decisions are made on the margin”, “Private markets are the best way to organize most economic activity,” and “I very much like the idea of teaching “market failure” concepts as part of a basic course, even though I agree that “government failure” is often a bigger problem.”

Because I’m a rank amateur at economics (especially rank when it’s this hot), I get to be more irreverent than the rest:

  1. Identify incentives to understand behavior, ignore incentives at your peril.
  2. There Ain’t No Such Thing As a Free Lunch; Somebody always pays.
  3. Greed is Good, in voluntary exchange.

[tags]economics,three concepts,greed[/tags]

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