Principle Of Economic

Ten Principles of Economics

The word economic comes from the greek wordm oikonomos  which, means “one who maages household” at fisrt  this origin might seem peculiar .but in fact,house hold and economies have much n comman.

  There is no mistery to what and economi  is. Whether  we ae talking abaut the economy  of los angeles  of the united states,or of the whole world,an economy is just a group of people interacting with one another as the go abaut their lives. Because the behavior of an economy reflects   the behavior of the individuals who make up economy,we start our study of economics with four  principles of indivial decision making.

Principle 1: People Face Trade-offs

  When   are  grouped into  societies, they face diferffernt kinds of trade-offs. The classic trade-offs  is between “guns and butter”. The ore we spend on national defense(guns) to protect our shores from  foreign  aggressors, the les we can spend on consumer goods (butter)  to raise  our  standard of living at home. Also important in modern  society is  the trade-off between  a clean  environment and a hight level  of income. Laws that  require firms to reduce pollution  raise the  cost of producing  goods and services. Because of the higher prices,or some combination of these there. Thu, while pollution regulatins  gie us the  benefit of  a cleaner  environment and improved  health that comes with it, they have the cost  of reducing the incomes of the firms”  owners, workers and customers.

Principle2: The cost of Something is what you give up to get it

    The second problem with this  calaulation costs is that it  ignores the largest  cost of going to college-your time  .when you sped a year listening  to lectures ,reading textbooks ,and writing  papers,you cannot spend the tie working at a job .for most studends ,the  wages given  up to atted school are the largest single  cust of the education.                                                                                 

  The opportunity cost of an item is what you  give up to get that item.when making any decision , such as weheter to anted college,decision makers   shoult  beaware of the  opportunity costs that  aaccompany each possible action. In fact ,they  usually are .college  athletes  who can earn  millions  if they droup out of school and play professional sprorts are well aware thet their epportunity cost of in college is very hight. It is  not suprising that they  often decide  thet they benefit is not worth the cost.

Principle 3:Rational People Think at the margin

     Rational people know that decisions in life are  rarely black and white but ussualy  involve  shades of gray.at dinnertime ,the decision you face  is not between  fasting or eating   like a pig but  whether to take  that extraspoonful of  mashed petaoes .hen exam roll around your decision is  not between  blowing them off or  studyihg 24 hours a they but  whether to spend and extra  hour revierwing  your notes instead of watching TV. Economistsuse the term marginal changes to describle small incremental adjustments to existing  plan of action .keep in meand that  magin means “edge”, so marginal changes  are adjustments around the edges  of whatyou are doing .rational people often make decisions b comparing  marginal benefits and marginal costs.

Principle 4:  People respond To Incentives

   An incetives is something (suchs as the prospect of a punishment or a reward)  that induces a peson to act.because Rational people make decisions by comparing costs  and benefits they respond to inceetives.you will see that inceives play a central  role in the study of economics .one economist went so far as to suggest  that the entire  field could besimply  summarized .” people  respond to incentives .the rest is commentary.

Principle 5: Trade can make eryone better off  

  To see why ,consider  how trade affects  your family .when  a nember of  your family looks for a job he or she competes  agains members of  other families who are looking for jobs. Families also  compete agains one another  when they go shopping  because each family wants  to buy  goods at the  lowest prices. So in a sense each family in the economy is competing with all other families.

Principle 6: Markets are usually a good way to organize  economic Activity

    The collapse of communism in the soviet  union and earsten Europe in the 1980s ma be the most important change in the word during the past half century. Communistn  countries worked on the premise that government officials ware in the  best position to  determine the allocation of searces in  resources in the economy.thse central planners decided what goods and serices  how much  was produced,and who produced and consumend these goods and services. The theory behind central planning was that only the government could organize  economi activity  in a way that promoted well-being for the country as a whole.

Principile 7: Government can sometime improve market outcomes

    One reason we need government is that the invisible hand can  work is magic only if the government enforces the rule and mainstains the institutions that are key to a market economy.Most important, markets  work only if propetyrigts are enfoced .a farmer  grow food if he expects his crorp to be stolen; aresturan wont  produce CDs ifto many  potential customers avoid paying  by making illgal copies. We all rely on government-provided police and courts to our ability to eforce our rights.

Principile 8: A country`s Standard of living depends on it ability to produce goods and services

   The realitionshep between productivity  and living standards also has profound implications  for public policy.when thinking abaut how anypolicy will effect living stsdards ,the key question is how it will affect to our abilty to produce goods and services.to boost living standars, policymakers need to rais productivity by ensuring that  workers are well educated ,have to tools needed to produce goods and services, and have acces to best available technology.

Pricinple 9:Princes rise when the government prints too much money                                                                                                                                                                                                                                   

   Although the united states has never experienced inflation evencloseto that in  germany in the 1920s, inflation  has at times  been a economic problem.during the 1970s for instance,the overall level of prices morethat doubled,and president Gerald for called inflation “pubic enemy number one”.By contrast,inflation in 1990s was about 3 precent per years;at this rate,it would take more that 20 years for prices goal of economic policymakers around the word.

Principle 10:Society  faces a short-run trade-off between inflation and unemployment

   Although a higher level of prices is, in the long run the primary effect of increasing the quantity oe money ,the short-run story is more complex  and more controversial most economists describe the  short-run effect  of monetary injections as follow

1.Increasing the amound of money if the economy  stimulstes the overall  level of spending and thus the demand for goods and services

2.higher demand may over time cause  firms to raise their prices,but in the meantime ,it also encourages them to increase the qualtity of goods and services they  produce  and to hire  more workers to produce those goods and services.

3.More hiring means lower unemployment.

This line of reasoning leads to one final economywide trade-off:a short-run trade-off between inflation and unemployment.