The Ten Limerick Principles of Economics

Says Harvard economics professor Greg Mankiw (pictured):

"Although the study of economics has many facets, the field is unified by several central ideas. The Ten Principles of Economics offer an overview of what economics is all about."

A generation of undergraduates has mastered the Ten Principles of Economics through the agency of Prof. Mankiw's famous textbooks and courses. Now, in the interest of the general public, Dr. Goose shines a light on these Principles to reveal their provocative yet oddly rational sexual subtext.

1. People Face Tradeoffs.
"I find," said a fellow named Grange,
"Our position exceedingly strange."
"My dear," said his Miss,
"If you hanker for this,
You must offer me that in exchange."

To get one thing, you have to give up something else. Making decisions requires trading off one goal against another.

2. The Cost of Something is What You Give Up to Get It.
"Never free are the amorous fruits,"
Said a girl who astutely computes,
"For there's much I'd have earned
If these calories burned
Had involved more productive pursuits."

Decision-makers have to consider both the obvious and implicit costs of their actions.

3. Rational People Think at the Margin.
Said a rational woman: "What then of it?
Though it's pointless persuading the men of it,
The marginal cost
Of virginity lost
May outweigh the marginal benefit."

A rational decision-maker takes action if and only if the marginal benefit of the action exceeds the marginal cost.

4. People Respond to Incentives.
In Miami, when winter ends sooner,
Then cheating becomes opportuner,
As the off-season rate
In the spring may abate
The marginal cost of a nooner.

Behavior changes when costs or benefits change.

5. Trade Can Make Everyone Better Off.
"I like trading," enthuses Ms. Mozer,
As could tell ev'ry fellow who knows 'er,
"I begin with Miguel,
Who stimulates well,
While Fritz is a hell of a closer."

Trade allows each person to specialize in the activities he or she does best. By trading with others, people can buy a greater variety of goods or services.

6. Markets Are Usually a Good Way to Organize Economic Activity.
Said she: "It's good to have planned
To get service by central command,
But it's really more fun
When ev'rything's done
By the able Invisible Hand."

Households and firms that interact in market economies act as if they are guided by an "invisible hand" that leads the market to allocate resources efficiently. The opposite of this is economic activity that is organized by a central planner within the government.

7. Governments Can Sometimes Improve Market Outcomes.
Said a tremulous fellow named Monk: "Sure,
I would rather no kids at this juncture,
So I'm glad they don't let
The marketplace set
The minimum standards for puncture."

When a market fails to allocate resources efficiently, the government can change the outcome through public policy. Examples are regulations against monopolies and pollution.

8. A Country's Standard of Living Depends on Its Ability to Produce Goods and Services.
"My sweet," said a lovable lout,
"Of this there can be little doubt:
The continuing health
Of our national wealth
Is dependent on how you put out."

Countries whose workers produce a large quantity of goods and services per unit of time enjoy a high standard of living. Similarly, as a nation's productivity grows, so does its average income.

9. Prices Rise When the Government Prints Too Much Money.
To her daughter said Mrs. McNeilly,
With a look that was solemn and steely:
"Your currency, dear,
Will be cheapened, I fear,
If you fling it about very freely."

When a government creates large quantities of the nation's money, the value of the money falls. As a result, prices increase, requiring more of the same money to buy goods and services.

10. Society Faces a Short-Run Tradeoff Between Inflation and Unemployment.
"Inflation is much like a phallus,"
Said a deep-thinking lady named Alice;
"It's better off bridled,
Though hands may be idled,
And some may complain this is callous."

Reducing inflation often causes a temporary rise in unemployment. This trade-off is crucial for understanding the short-run effects of changes in taxes, government spending and monetary policy.