Some Thoughts on Teaching “Economics as a Way of Thinking;” Or, on getting students to see “the Seen” and “the Unseen” in the world around them

By David M. Hart

Version: 25 Aug. 2017

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The Key Concepts of Economics

Human Action (individual)

  1. the principle of human action: all individuals evaluate, choose, and act in order to achieve their ends (whatever these may be)
  2. the value individuals place on the things they desire, and the costs and benefits they expect to get from them are subjective
  3. individuals respond to incentives/disincentives, that is the expected benefits and costs to themselves
  4. the things we value are scarce (including time and information)
  5. scarcity makes economizing necessary
  6. economizing means making trade-offs
  7. the concept of opportunity cost - buying something means you don’t buy something else
  8. cost to whom? when? and where? - cost is always at the margin, at that position in time and space where the decision maker currently stands

Human Interaction (social)

  1. principle of human interaction: humans interact with other in a myriad of ways, individual (one-on-one interactions) and social/institutional (many-to-many)
  2. institutions matter: they create or embody incentives and disincentives which favour or discourage economic activity; allow cooperation and organisation for large-scale projects; protect property rights and contracts; dispute resolution
  3. productivity is increased by means of the division of labour
  4. prices of goods and services (changing relative prices) transmit information which producers, buyers, and sellers need in order to make economic decisions about what and where to produce
  5. freely determined prices allow the coordination of economic activity on a large scale because prices provide both the information and the incentives without which coordination could not occur
  6. the economic coordination of suppliers and demanders allows for a multiplicity of diverse and incommensurable projects to be undertaken
  7. both parties to a voluntary trade benefit because of their different individual preferences and valuation of the things exchanged
  8. the seen and the unseen: the idea that there are always immediate and obvious consequences of economic activity (what Bastiat called “the seen”) as well as longer term, indirect or less visible consequences which “good economists” should expect to be there (what FB called “the unseen”)
  9. government interventions in the economy often have unintended consequences
  10. politicians and bureaucrats also have goals and preferences which they pursue/attempt to achieve (public choice) by political means - they also work within institutions with certain constraints and incentives which affect their behaviour