Ten principles of Economics

Nicolas Gregory Mankiw’s Ten Principles of Economics:

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Nicolas Gregory Mankiw is an macroeconomist and Professor of economics at Harvard University.Mankiw proposed 10 principles of economics which is unified by several central ideas.These 10 principles of economics offer an overview about what economics is all about.

How people make decisions

1.People face trade off: To get one thing you have to give up something else.Making decisions require s trading off one goal against another.

2.The cost of something is what you give up to get it:Decision makers have to consider both the ovious and implicit costs of their actions.

3.Rational people think at the margin: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:Behaviour changes when the cost and benefit changes.

How people interact

5.Trade can make everyone better Off: 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.Market are usually a good way to organize economic activity: Households and firms that interact in market economics act as if they are guided by an “invisible hand” that leads the market to allocate resources efficiently.The opposite of this economic activity that is organized by a central planner within the government.

7.Government can sometimes improve market outcomes: When the market fails to allocate resources efficiently,the government can change the outcome through public policy.Examples are regulations against monopolies and pollution.

How economy works as a whole

8.A country’s standard of living depends on its ability to produce goods and services: 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.Price rise when the government prints too much money:When a government create large quantity of nation’s money,the value of the money falls.As a result, prices increase,requiring more of the same money to buy the goods and services.

10. Society faces a short-run tradeoff between inflation and unemployment:Reducing inflation often causes a temporary rise in unemployment. This tradeoff is crucial for understanding the short-run effects of changes in taxes,govenment spending and monetary policy.

 

 

 

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