Ten Principles of Economics - Micro & Macro EconomicsFaHaD .H. NooR
Ten Principles of Economics
Principle #1: People Face Trade-offs.
Principle #2: The Cost of Something Is What You Give Up to Get It.
Principle #3: Rational People Think at the Margin.
Principle #4: People Respond to Incentives.
Principle #5: Trade Can Make Everyone Better Off.
Principle #6: Markets Are Usually a Good Way to Organize Economic Activity.
Principle #7: Governments Can Sometimes Improve Market Outcomes.
Principle #8: The Standard of Living Depends on a Country’s Production.
Principle #9: Prices Rise When the Government Prints Too Much Money.
Principle #10: Society Faces a Short-run Trade-off Between Inflation and Unemployment.
Ten Principles of Economics - Micro & Macro EconomicsFaHaD .H. NooR
Ten Principles of Economics
Principle #1: People Face Trade-offs.
Principle #2: The Cost of Something Is What You Give Up to Get It.
Principle #3: Rational People Think at the Margin.
Principle #4: People Respond to Incentives.
Principle #5: Trade Can Make Everyone Better Off.
Principle #6: Markets Are Usually a Good Way to Organize Economic Activity.
Principle #7: Governments Can Sometimes Improve Market Outcomes.
Principle #8: The Standard of Living Depends on a Country’s Production.
Principle #9: Prices Rise When the Government Prints Too Much Money.
Principle #10: Society Faces a Short-run Trade-off Between Inflation and Unemployment.
XII - CBSE ECONOMICS 2017-18
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The Major reason for the people’s demand for money is that it is needed in any economy in which almost every person and firm sells goods and services for money and in turn uses money to buy the goods and services offered by others. Functionally this amount of money used as a medium of exchange. Classical theory explained the demand for money as essentially a demand resulting from this need for money as medium of exchange.
In Keynesian theory, money becomes much more than a medium of exchange, much more than a medium of exchange, much more than a device for meeting transactions in the marketplace. People also demand money for speculative purposes and as security against unforeseen needs for cash reserves. The break down of the demand for money into transactions and precautionary and speculative demands plays a vital part in the theory of Keynes.
Gregory Mankiw in his Principles of Economics outlines Ten Principles of Economics that will replicate here, they are:
*People face trade-offs
*The cost of something is what you give up to get it
*Rational people think at the margin
*People respond to incentives
*Trade can make everyone better off
*Markets are usually a good way to organize economic activity
*Governments can sometimes improve market outcomes
*A country's standard of living depends on its ability to produce goods and services
*Prices rise when the government prints too much money
*Society faces a short-run tradeoff between Inflation and unemployment.
XII - CBSE ECONOMICS 2017-18
PRODUCER EQUILIBRIUM
I AM CONFIDENT THAT STUDENTS WILL FIND THIS SLIDE USEFUL AND SUITABLE FOR CBSE EXAMINATION IN 2017-18. ANY FEEDBACK OR QUERIES YOU CAN POST IT TO MY E-MAIL ID.
The Major reason for the people’s demand for money is that it is needed in any economy in which almost every person and firm sells goods and services for money and in turn uses money to buy the goods and services offered by others. Functionally this amount of money used as a medium of exchange. Classical theory explained the demand for money as essentially a demand resulting from this need for money as medium of exchange.
In Keynesian theory, money becomes much more than a medium of exchange, much more than a medium of exchange, much more than a device for meeting transactions in the marketplace. People also demand money for speculative purposes and as security against unforeseen needs for cash reserves. The break down of the demand for money into transactions and precautionary and speculative demands plays a vital part in the theory of Keynes.
Gregory Mankiw in his Principles of Economics outlines Ten Principles of Economics that will replicate here, they are:
*People face trade-offs
*The cost of something is what you give up to get it
*Rational people think at the margin
*People respond to incentives
*Trade can make everyone better off
*Markets are usually a good way to organize economic activity
*Governments can sometimes improve market outcomes
*A country's standard of living depends on its ability to produce goods and services
*Prices rise when the government prints too much money
*Society faces a short-run tradeoff between Inflation and unemployment.
chapter 1, ten principles of economics, from principles of economics, Gregory Mankiw (2019)
. . . The word economy comes from a Greek word for “one who manages a household.”
A household and an economy face many decisions:
Who will work?
What goods and how many of them should be produced?
What resources should be used in production?
At what price should the goods be sold?
Society and Scarce Resources:
The management of society’s resources is important because resources are scarce.
Scarcity. . . means that society has limited resources and therefore cannot produce all the goods and services people wish to have.
Economics is the study of how society manages its scarce resources.
How people make decisions.
People face tradeoffs.
The cost of something is what you give up to get it.
Rational people think at the margin.
People respond to incentives.
How people interact with each other.
Trade can make everyone better off.
Markets are usually a good way to organize economic activity.
Governments can sometimes improve economic outcomes.
2024.06.01 Introducing a competency framework for languag learning materials ...Sandy Millin
http://sandymillin.wordpress.com/iateflwebinar2024
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June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...Levi Shapiro
Letter from the Congress of the United States regarding Anti-Semitism sent June 3rd to MIT President Sally Kornbluth, MIT Corp Chair, Mark Gorenberg
Dear Dr. Kornbluth and Mr. Gorenberg,
The US House of Representatives is deeply concerned by ongoing and pervasive acts of antisemitic
harassment and intimidation at the Massachusetts Institute of Technology (MIT). Failing to act decisively to ensure a safe learning environment for all students would be a grave dereliction of your responsibilities as President of MIT and Chair of the MIT Corporation.
This Congress will not stand idly by and allow an environment hostile to Jewish students to persist. The House believes that your institution is in violation of Title VI of the Civil Rights Act, and the inability or
unwillingness to rectify this violation through action requires accountability.
Postsecondary education is a unique opportunity for students to learn and have their ideas and beliefs challenged. However, universities receiving hundreds of millions of federal funds annually have denied
students that opportunity and have been hijacked to become venues for the promotion of terrorism, antisemitic harassment and intimidation, unlawful encampments, and in some cases, assaults and riots.
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2. Economy. . .
. . . The word economy comes from a Greek
word for “one who manages a household.”
4/11/2013 Babasabpatilfreepptmba.com
3. TEN PRINCIPLES OF ECONOMICS
• A household and an economy
face many decisions:
– Who will work?
– What goods and how many of them should be
produced?
– What resources should be used in production?
– At what price should the goods be sold?
4/11/2013 Babasabpatilfreepptmba.com
4. TEN PRINCIPLES OF ECONOMICS
Society and Scarce Resources:
– The management of society’s resources is
important because resources are scarce.
– Scarcity. . . means that society has limited
resources and therefore cannot produce all the
goods and services people wish to have.
4/11/2013 Babasabpatilfreepptmba.com
5. TEN PRINCIPLES OF ECONOMICS
Economics is the study of how society manages
its scarce resources.
4/11/2013 Babasabpatilfreepptmba.com
6. TEN PRINCIPLES OF ECONOMICS
• How people make decisions.
– People face tradeoffs.
– The cost of something is what you give up to get
it.
– Rational people think at the margin.
– People respond to incentives.
4/11/2013 Babasabpatilfreepptmba.com
7. TEN PRINCIPLES OF ECONOMICS
• How people interact with each other.
– Trade can make everyone better off.
– Markets are usually a good way to organize
economic activity.
– Governments can sometimes improve economic
outcomes.
4/11/2013 Babasabpatilfreepptmba.com
8. TEN PRINCIPLES OF ECONOMICS
• The forces and trends that affect how the
economy as a whole works.
– The standard of living depends on a country’s
production.
– Prices rise when the government prints too much
money.
– Society faces a short-run tradeoff between
inflation and unemployment.
4/11/2013 Babasabpatilfreepptmba.com
9. Principle #1: People Face Tradeoffs.
“There is no such thing as a free lunch!”
4/11/2013 Babasabpatilfreepptmba.com
10. Making decisions requires trading
off one goal against another.
Principle #1: People Face Tradeoffs.
To get one thing, we usually have to give up
another thing.
– Guns v. butter
– Food v. clothing
– Leisure time v. work
– Efficiency v. equity
4/11/2013 Babasabpatilfreepptmba.com
11. Principle #1: People Face Tradeoffs
• Efficiency v. Equity
– Efficiency means society gets the most that it can
from its scarce resources.
– Equity means the benefits of those resources are
distributed fairly among the members of society.
4/11/2013 Babasabpatilfreepptmba.com
12. Principle #2: The Cost of Something Is What You Give
Up to Get It.
• Decisions require comparing costs and benefits
of alternatives.
– Whether to go to college or to work?
– Whether to study or go out on a date?
– Whether to go to class or sleep in?
• The opportunity cost of an item is what you
give up to obtain that item.
4/11/2013 Babasabpatilfreepptmba.com
13. Principle #2: The Cost of Something Is What You Give
Up to Get It.
LA Laker basketball star
Kobe Bryant chose to
skip college and go
straight from high
school to the pros
where he has earned
millions of dollars.
4/11/2013 Babasabpatilfreepptmba.com
14. People make decisions by comparing
costs and benefits at the margin.
Principle #3: Rational People Think at the Margin.
• Marginal changes are small, incremental
adjustments to an existing plan of action.
4/11/2013 Babasabpatilfreepptmba.com
15. Principle #4: People Respond to Incentives.
• Marginal changes in costs or benefits motivate
people to respond.
• The decision to choose one alternative over
another occurs when that alternative’s
marginal benefits exceed its marginal costs!
4/11/2013 Babasabpatilfreepptmba.com
16. Principle #5: Trade Can Make Everyone Better Off.
• People gain from their ability to trade with
one another.
• Competition results in gains from trading.
• Trade allows people to specialize in what they
do best.
4/11/2013 Babasabpatilfreepptmba.com
17. Principle #6: Markets Are Usually a Good Way to
Organize Economic Activity.
• A market economy is an economy that
allocates resources through the decentralized
decisions of many firms and households as
they interact in markets for goods and
services.
– Households decide what to buy and who to work
for.
– Firms decide who to hire and what to produce.
4/11/2013 Babasabpatilfreepptmba.com
18. Principle #6: Markets Are Usually a Good Way to
Organize Economic Activity.
• Adam Smith made the observation that
households and firms interacting in markets act
as if guided by an “invisible hand.”
– Because households and firms look at prices when
deciding what to buy and sell, they unknowingly
take into account the social costs of their actions.
– As a result, prices guide decision makers to reach
outcomes that tend to maximize the welfare of
society as a whole.
4/11/2013 Babasabpatilfreepptmba.com
19. Principle #7: Governments Can Sometimes Improve
Market Outcomes.
• Market failure occurs when the market fails to
allocate resources efficiently.
• When the market fails (breaks down)
government can intervene to promote
efficiency and equity.
4/11/2013 Babasabpatilfreepptmba.com
20. Principle #7: Governments Can Sometimes Improve
Market Outcomes.
• Market failure may be caused by
– an externality, which is the impact of one person or
firm’s actions on the well-being of a bystander.
– market power, which is the ability of a single
person or firm to unduly influence market prices.
4/11/2013 Babasabpatilfreepptmba.com
21. Principle #8: The Standard of Living Depends on a
Country’s Production.
• Standard of living may be measured in
different ways:
– By comparing personal incomes.
– By comparing the total market value of a nation’s
production.
4/11/2013 Babasabpatilfreepptmba.com
22. Principle #8: The Standard of Living Depends on a
Country’s Production.
• Almost all variations in living standards are
explained by differences in countries’
productivities.
• Productivity is the amount of goods and
services produced from each hour of a worker’s
time.
4/11/2013 Babasabpatilfreepptmba.com
23. Principle #8: The Standard of Living Depends on a
Country’s Production.
• Standard of living may be measured in different
ways:
– By comparing personal incomes.
– By comparing the total market value of a nation’s
production.
4/11/2013 Babasabpatilfreepptmba.com
24. Principle #9: Prices Rise When the Government Prints
Too Much Money.
• Inflation is an increase in the overall level of
prices in the economy.
• One cause of inflation is the growth in the
quantity of money.
• When the government creates large quantities
of money, the value of the money falls.
4/11/2013 Babasabpatilfreepptmba.com
25. Principle #10: Society Faces a Short-run Tradeoff
Between Inflation and Unemployment.
• The Phillips Curve illustrates the tradeoff
between inflation and unemployment:
Inflation Unemployment
It’s a short-run tradeoff!
4/11/2013 Babasabpatilfreepptmba.com
26. Summary
• When individuals make decisions, they face
tradeoffs among alternative goals.
• The cost of any action is measured in terms of
foregone opportunities.
• Rational people make decisions by comparing
marginal costs and marginal benefits.
• People change their behavior in response to
the incentives they face.
4/11/2013 Babasabpatilfreepptmba.com
27. Summary
• Trade can be mutually beneficial.
• Markets are usually a good way of
coordinating trade among people.
• Government can potentially improve market
outcomes if there is some market failure or if
the market outcome is inequitable.
4/11/2013 Babasabpatilfreepptmba.com
28. Summary
• Productivity is the ultimate source of living
standards.
• Money growth is the ultimate source of
inflation.
• Society faces a short-run tradeoff between
inflation and unemployment.
4/11/2013 Babasabpatilfreepptmba.com