Question

describe economy as a whole, from the 10 principles of economy 8,9 and 10 and give an example

Answer 1

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Introduction

Essentially, economics and the economic principle are about satisfying unlimited consumer wants with limited resources. Another definition of the economic principle is the study of the choices consumers make and the factors and behaviors affecting those choices

1. People Face Tradeoffs To Get one thing, we usually have to give up something else, A society also faces tradeoffs between the Efficiency and Equity. The government generally tax rich people so that it can get the money from them and use it for the welfare of the poor people; this brings the equity but reduced the efficiency.
   • Ex. Leisure time vs. work
2. The Cost of Something is What You Give Up to Get It
   • Opportunity cost is the second best alternative foregone.
   • Since we do tradeoffs, the people generally find out the cost and benefits that their action going to incur. For an action, one has to sacrifice something. For example: I have come here to do post-graduation but I had to sacrifice my server administrator job.
     • Ex. The opportunity cost of going to college is the money you could have earned if you used that time to work.
3. Rational People Think at the Margin
   • Marginal changes are small, incremental changes to an existing plan of action
     • Ex. Deciding to produce one more pencil or not
   • People will only take action of the marginal benefit exceed the marginal cost
4. People Respond to Incentives
   • Incentive is something that causes a person to act. Because people use cost and benefit analysis, they also respond to incentives
     • Ex. Higher taxes on cigarettes to prevent smoking
5. Trade Can Make Everyone Better Off
   • Trade allows countries to specialize according to their comparative advantages and to enjoy a greater variety of goods and services
6. Markets Are Usually a Good Way to Organize Economic Activity
   • Adam Smith made the observation that when households and firms interact in markets guided by the invisible hand, they will produce the most surpluses for the economy
7. Governments Can Sometimes Improve Economic Outcomes
   • Market failures occur when the market fails to allocate resources efficiently. Ex.Governments can step in and intervene in order to promote efficiency and equity.
8. The Standard of Living Depends on a Country's Production
   • The more goods and services produced in a country, the higher the standard of living.
   • The living standard in the country is depends upon the country producing capacity. In country where, more goods and service are produced in a unit time there standard of living is high as compared to the people with less productivity.
   • Ex. As people consume a larger quantity of goods and services, their standard of living will increase
   • Ex.Living standard of a U.S. citizen is better than living standard of Mexican and Nigerian citizen as a U.S. citizen earn more than those two citizen.
9. Prices Rise When the Government Prints Too Much Money
   • When too much money is floating in the economy, there will be higher demand for goods and services. This will cause firms to increase their price in the long run causing inflation.Inflation is the state in which the price level increases in the economy. Inflation occurs when the supply of the money, which is under the hood of government, increased drastically in compare to the accessibility of services and goods in the markets
   • For example: When in Germany the average price of the commodity is tripling every month so the production of money is also tripling every month
10. Society Faces a Short-Run Tradeoff Between Inflation and Unemployment
    • In the short run, when prices increase, suppliers will want to increase their production of goods and services. In order to achieve this, they need to hire more workers to produce those goods and services. More hiring means lower unemployment while there is still inflation. However, this is not the case in the long-run.
    • Policy that are making, to reduce the inflation led to increase in unemployment and policy to reduce unemployment led to increase in inflation this properly describe in Philip curve. This concept ends in 1970 when inflation and unemployment co-existed at their maximum peak
    • For Example, Key player, which are present in the market environment, are the producer, consumer and the government. Decision of the producer to produce goods, entering or exiting the market comes under the microeconomics, which is the individual decision of firm

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