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the ten principles of economics

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andres julian corredor

on 7 November 2012

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Transcript of the ten principles of economics

Gregory Mankiw Ten principles of economics Economy is how the individuals make decisions of how to manage their scarce resources, and the behavior of each individual in every decision it makes what economy really is scarcity : is the limitation of the quantity of the resources of the society how individuals make decisions How people interact How the economy works as a whole #8. a country 's standard of living depends on its ability to produce goods and services #5. Trade can make everyone better off #1. People faces trade offs the three types of principles economic principles are divided in three categories #4. People respond to incentives #3. Rational people think at the margin #2. The cost of something is what you give up to get it #1. People faces trade offs Always people have to make decisions about the things they need, want or have to use. The main reason is that they have to decide it's because the resources are limited; not only money there are many things that are limited, such as time. why? #1. People faces trade offs the most famous example of this situation is the trade-off of the and the butter: in a metaphoric way the goods and services of one nation Guns: in a metaphoric the way a nation defends itself from others that could steal their butter are is guns Butter efficiency equality or if the society picks the equality, The society would have lees incomes and less production, but the citizens will have a much better conditions of life if society picks the efficiency people would have a very bad way of life but the incomes and the production would be the greatest This is another trade-off that we can find in society the efficiency and the equality #2. The cost of something is what you give up to get it efficiency: is the property of society of getting the most of their scarce resources equality: is the property of distributing the resources fairly to the citizens or members o the society People is obligated to decide from different trade-offs the people behavior is always of comparing the opportunity cost of the trade-offs opportunity cost: is the best option people sacrifice to obtain something for example you lose if you are a student and you are a good soccer player, and being a professional soccer player represents you 1 million dollars in your pocket and studying represents paying 1 million dollars study professional soccer player #3 rational people think at the margin In life not always there are white and black stripes, in the margin there are grey stripes economist use the term marginal changes marginal changes means: the small adjusts of a plan of action #4. People respond to incentives because the people make the decisions based on the costs and benefits of a trade-off; this one is more attractive if it provides more benefits than costs in a market the sold-outs are a very good way to attract people for buy. in a society the decisions that government make could change the mood of the citizens, for example: when the taxes over the gasoline are too high the citizens would have bad perceptions about the government, although the government establish lower taxes the people would have a different perspectives from the government #6. markets are usually a good way to organize the economic activity #7. Governments can sometimes improve markets outcomes #9. prices rises when the governments prints too much money #10. society faces a short-run tradeoff between inflation and unemployment #5.trade can make everyone better off the competition between two economies is good because it provides to each nation benefits and it make the economy grow because of the variety of a product. 6th: markets are usually a good way to organize the market activity. an economy that allocates resources
through the decentralized decisions
of many firms and households as
they interact in markets for goods
and services; this usually help to organize how the prices are established or what products the society needs 7th: Government can sometimes improve the markets. as we saw back in the principle of the trades-offs; we faced the classic trade off; efficiency and equality. the government is the only one that can change this principles by proclaiming laws that benefit one of the both. when the invisible hand does not work, the government is in the capacity of changing the different policies for saving the market from the market failure Market Failure: a situation in which a market left on
its own fails to allocate resources
efficiently 7th: the government can sometimes improve the markets the market failures are caused by externalities; one externality can be an earthquake or an incident caused by a side-hander Externalities: the impact of a person's action on the well being; bieng it a side hander. there is another market failure it is called the market power; it is because one group of people or one person can influence the market prices 8th: A COUNTRY’S STANDARD OF
PRODUCE GOODS AND SERVICES if a country produces more good and services people would have more goods and services that the face off; but all of this depends on productivity productivity: the amount of production by each producer. 9th: prices raises the the government printsa lot of money when the prices increase considerably over the overall of the prices in the economy; this is called INFLATION the inflation happens when the market have a lot of money circulating; this makes the money decrease its value 10th: society faces a short-run trade off between the inflation and unemployment the reason why this trade off is caused, it's because in the market some prices are slow to adjust; when the government prints less money; the prices are going to fall so this will cause less spending; an less employment; but this is for a short run.
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