Scribd
Upload
46 views

Assignment (10 Principles)

This document outlines 10 principles of microeconomics: 1. People face tradeoffs and must give something up to get something else. 2. The cost of anything is what one gives up to obtain it, known as opportunity cost. 3. Rational people make decisions by comparing marginal costs and marginal benefits. 4. People respond to incentives and change behavior based on costs and benefits. 5. Trade can make all parties better off by providing access to lower cost goods. 6. Markets are generally a good way to organize economic activity through decentralized decision making. 7. Governments can sometimes improve outcomes by addressing market failures or inequities.

Uploaded by

shahzeb azhar
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
46 views

Assignment (10 Principles)

This document outlines 10 principles of microeconomics: 1. People face tradeoffs and must give something up to get something else. 2. The cost of anything is what one gives up to obtain it, known as opportunity cost. 3. Rational people make decisions by comparing marginal costs and marginal benefits. 4. People respond to incentives and change behavior based on costs and benefits. 5. Trade can make all parties better off by providing access to lower cost goods. 6. Markets are generally a good way to organize economic activity through decentralized decision making. 7. Governments can sometimes improve outcomes by addressing market failures or inequities.

Uploaded by

shahzeb azhar
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 6

Shahzeb azhar

5602-FMS/BBA/S19

Principles of Microeconomics
PRINCIPLE 1 : PEOPLE
FACE TRADEOFFS

In our world,no free lunch is available.One has to give up a thing to have another
one.Example,I hourly study economics, now for every hour I use a break for outside walk
for mental freshness.So,in this example we see that for using break I have to give up study
and vice versa.Consider another example,I use my money for food to survive and bought it
for 160 Rs.Here again I have to decrease money to increase food.

PRINCIPLE 2 : COST OF
ANYTHING IS WHAT YOU
GIVE UP TO GET IT
Opportunity cost of something is whatever you give up to get it.Example,to go to school one
must have to sacrifice his other activities like shopping.In other words,one has to sacrifice
his time for shopping just because of going to school.It’s impossible to be at two places at
once,so we have to sacrifice shopping.
PRINCIPLE #3: RATIONAL
PEOPLE THINK AT THE
MARGIN

Rational people make decisions by comparing marginal costs and marginal benefits. A
rational decisionmaker takes an action if and only if the marginal benefit of the action
exceeds the marginal cost.

PRINCIPLE #4: PEOPLE


RESPOND TO INCENTIVES

People change their behavior in response to the incentives they face. Because people make
decisions by comparing costs and benefits, their behavior may change when the costs or
benefits change.
PRINCIPLE #5: TRADE
CAN MAKE EVERYONE
BETTER OFF

Trade can be mutually beneficial. Trade between two countries can make each country
better off. By trading with others, people can buy a greater variety of goods and services at
lower cost.

PRINCIPLE #6: MARKETS


ARE USUALLY A GOOD
WAY TO ORGANIZE
ECONOMIC ACTIVITY

Markets are usually a good way of coordinating trade among people. In a market economy,
the decisions of a central planner are replaced by the decisions of millions of firms and
households.
PRINCIPLE #7:
GOVERNMENTS CAN
SOMETIMES IMPROVE
MARKET OUTCOMES
Government can potentially improve market outcomes if there is some market failure or if
the market outcome is inequitable. There are two broad reasons for a government to
intervene in the economy: to promote efficiency and to promote equity. That is,most
policies aim either to enlarge the economic pie or to change how the pie is divided.

PRINCIPLE #8: A
COUNTRY’S STANDARD
OF LIVING DEPENDS ON
ITS ABILITY TO PRODUCE
GOODS AND SERVICES
Productivity is the ultimate source of living standards. Productivity is the amount of goods
and services produced from each hour of a worker’s time. To boost living standards,
policymakers need to raise productivity byensuring that workers are well educated, have
the tools needed to produce goodsand services, and have access to the best available
technology.
PRINCIPLE #9: PRICES
RISE WHEN THE
GOVERNMENT PRINTS
TOO MUCH MONEY
Money growth is the ultimate source of inflation. Inflation is an increase in the overall level
of prices in the economy. In Germany in the early 1920s, when prices were on average
tripling every month, the quantity of money was also tripling every month.

PRINCIPLE #10: SOCIETY


FACES A SHORT-RUN
TRADEOFF BETWEEN
INFLATION AND
UNEMPLOYMENT:
Reducing inflation is often thought to cause a temporary rise in unemployment. Phillips
curve is a curve that shows the short-run tradeoff between inflation and unemployment

You might also like