ASSIGNMENT

Economics and Society

on topic

 International Economic Growth & Development

Student: Lecturer:

Marija Stojanchevska Zhivkovikj Erjona

Skopje, 26.01.2022

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PRINCIPLES OF ECONOMICS
With economics, there is a lot to learn. It can be defined as the science of analyzing the
production, distribution, and consumption of products. In simple terms, economics is all about
the choices people make, why, and when buying products and services. Economics, as a subject
of study, features two subcategories, microeconomics, and macroeconomics. As you may have
already guessed, micro means small. Hence, microeconomics is the study of economics at an
individual or business level. It seeks to discuss how people or businesses behave and the decision
they make when faced with scarcity and government intervention. It includes concepts of
demand and supply, price fluctuations, quantity demanded, and supplied, among other aspects.

Macro, on the other hand, is a term that defines something much larger. Thus, in
microeconomics, we are referring to the study of the performance and structure of the economy
as a whole. Instead of focusing on individual markets, as in microeconomics, we look at
economics as a field that affects humanity as a whole. Macroeconomics deals with elements such
as inflation, international trade, unemployment, notional consumption, and production, among
other concepts. The study of economics is necessary for modern society because it gives people a
chance to make decisions that lead to a better life. And this is why there is a set of principles that
offer guidance in economic studies.

KEY PRINCIPLES IN ECONOMICS

Every theory and concept of economy is based on a specific principle. The study of production,
distribution, and consumption of goods can be described using these guidelines.

Scarcity is the main cause of problems in the global economy. Human beings require specific
resources to survive. They include human wants like clothes, shelter, food, transportation, and
many others. To get these things, one must be ready to pay for them. And where does the money
come from? People work to earn the money they need to enjoy certain things in life. However,
we all know that there are people who don’t have food, others don’t have shelter, and others
cannot get a job, even after going through many school years. And for those who have jobs, how
many can say they have everything they need to live the way they want? Very few. It is all
because of scarcity. The best definition of economics is carried in these terms, which, by default,
seems to determine the cause of national and global economies.

Human beings need resources to meet their daily needs. However, there is a finite supply of these
resources at any given time. Whereas this is so, human wants are infinite, and these limited
resources cannot meet them. When a good or service gets to a non-zero price, it is considered
scarce. As such, the consumer should be prepared to pay a high cost to consume such. It is,
therefore, a scarcity that leads to the study of economics; without it, the world would not be
facing any economic problems, hence no need to study. People will consume everything they
need to consume without being compelled to choose or make trade-offs between goods.

Marginal is a term used in economics that means a small, or one-unit change. For instance, one
must decide how much better off they would be with one more unit. Human beings are rational

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thinkers. For this reason, As such, to answer this question, they will continue to increase the
variable until the gains additional (marginal) value from the previous small addition that is the
same as the marginal cost of the prior increase. Let’s think about your favorite $1 menu from
your restaurant of choices. Each additional item costs you the dollar, and with every addition,
you eat or drink, your want is satisfied. But it will come a time when you stop consuming the
product. We can say that is the point at which the additional benefit you got while consuming the
item is valued at $1 or less. The marginal benefit is said to be equal to the minimal cost.

We can break the principles of the economy into three main categories:

- The way people make decisions

- The way people interact with each other

- Forces and trends the shape economy

- PEOPLE AND TRADE-OFFS

The principle states that “there is nothing like a free lunch.” In order to get something you want,
you must always give up something else you like. In other words, making decisions compels
individuals to trade something they like with another. Sometimes it is so automatic that people
don’t even realize they have sacrificed something for another.

A good example is how families make financial decisions. After saving for a long time, do you
buy that you really need for a fancy vacation? Also, the government must decide how they are
going to revenues and how laws may protect the environment but affect the investor.

The trade-off between efficiency and quality maybe perhaps a perfect example of what this
principle stands for. Efficiency is when a property benefits from a scarce resource, whereas
equality is when the property is shared equally among the members of the society. For instance,
the rich pay taxes, which can be shared to improve the lives of the poor. However, it lowers the
incentives for hardware, which cuts down the effort produced by our resources.

- THE IMPACT OF OPPORTUNITY COST IN RELATION TO DECISION

MAKING

Because trade-offs are inevitable, people must compare the costs against the benefits of
alternative choices. For instance, going to college for a year costs tuition, books, and fees,
together with the foregone wages. One the other hand, going to the movies costs the price of a
ticket and the value of time one has to stay in the room. Here, one has to make a decision based
on the opportunity cost of resources, which states that whatever must be left in order to gain
some item is the best decision. In this case, therefore, thinks must look at the opportunity cost of
each alternative.

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- PEOPLE ARE NATURALLY RATIONAL, THEY THINK AT THE MARGIN

We have already seen in the previous section that most people are rational thinkers. Economists
look rational as a process of one systematically and purposefully doing everything they can to
achieve their goals. Based on the current price and in comes people face, consumers will want to buy a
certain group of products and services that satisfy them the most. The firm follows production strategies that help
them tap into maximum profits. Most decisions in life are defined as incremental. Should I do more to gain more?
Rational thinkers look at the marginal benefits first, and then marginal cost before settling on a decision. Also, a
consumer will pay for a commodity based on additional satisfaction from an increase in the unit of the item.

 INCENTIVES CHANGE HOW PEOPLE THINK AND REACT

An incentive is something that motivates someone to take action. It does thin by promising
rewards to individuals who change their actions or behavior. We have seen above that rational
people decide by a comparison between costs and benefits. For this reason, they respond to
incentives in a more positive way. Incentives may carry both positive and negative implications.
For instance, when workers are promised a salary raise if they work harder, it becomes a positive
incentive because it will encourage them to be more productive. A negative incentive can be like
putting a tax on fuel, which causes people to consume it much slower.

INTERPERSONAL INTERACTIONS
Another category of economic principles is how people interact with each other. In this category,
we also get their vital principles.

- SOCIAL AND ECONOMIC WELL-BEING DEPENDS ON TRADE

Trade cannot be likened to a sport where one side wins, and the other loses. Trade makes
everything gain at equal levels. Think of a trade that happens in your house, for instance. Let’s
say your family gets involved in trade with other families every day. Many of us don’t make our
own food, clothes, and many other commodities. Hence, we depend on others to provide, as we
pay back with what we can do. A country benefits by signing trade treaties with others. A
country that specializes in specific products can export outside and import what they don’t have.

- MARKETS HELP ORGANIZE ECONOMIC ACTIVITIES

In the past, many countries relied on centrally planned economies. But they have since
abandoned this system and adopted market systems. The market economy is defined as an
economy that allocates resources via decentralized decisions involving many firms and
stakeholders, who mingle in the market for products. Market prices, for instance, are a reflection
of a product to consumers and the representation of resources that went into its manufacture.
Markets are fundamental in an economy because they allow for the sharing of goods and services
in a more straightforward manner. Economies that don’t allow markets to work have failed
because they don’t have a proper sense of direction. Markets create a point where producers and
consumers can meet and exchange items.

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- GOVERNMENTS’ ROLE IN MARKET OUTCOMES

Governments are always interfering with the economy. This is because they seek to ensure
promotion efficiency as well as equality. For instance, government policy can be beneficial
where a market fails. Market failure is a condition where a market left along cannot allocate
resources efficiently. An example or market includes externality and market power. Externality
is the influence of the behavior of one individual on the well being of a bystander. Market power
is when a particular economic entity has the ability to cause substantial influence on market
prices. The market economy benefits people based on their ability to work and produce
consumer valuables. For this reason, the chances of an unequal distribution of economic
prosperity are very high. This principle highlights that a government can improve market results.
But it does not mean the government improves market outcomes at all times.

FORCE AND TRENDS THE DETERMINE ECONOMY

CAUSES
Many forces influence the behavior of an economy. They are used too, to determine how much
economies drop or grow. They include:

- A COUNTRY’ PRODUCTION DICTATES THE STANDARD OF LIVING

There is a huge difference between the standards of living among countries. What is witnessed in
one can be totally different from what another has. And the changes in living standards over time
also very large. It is all about the productivity of a nation. Productivity is the quality of goods
and services produced from each hour in a worker’s time. The higher the productivity, the higher
the standard of living. This means policymakers must be aware of any policy on people’s ability
to make products. They need to raise productivity by making sure workers gain proper education
and are equipped with everything they need for better delivery of goods and services. Today,
technology run economies and policymakers must make it available for workers. Production is
simple per capita of a nation.

- MONEY SUPPLY AFFECT PRICING

Inflation is a constant increase in the overall price levels within an economy. Many factors lead
to inflation and the major one if when the government prints too much money. In this case, the
value of money drops significantly, leading to poor exchange rates. This forces producers to raise
prices to meet production costs.

- INFLATION AND UNEMPLOYMENT ARE NORMAL SHORT-RUN

TRADE-OFFS IN SOCIETY

According to many economists, when there is a monetary injection (adding money in an

economy), it causes short-term effects, including a low level of unemployment and higher prices
in the market. More money initiates spending, which causes a surge in demand for goods and
services. And as we know, high demand means firms raise prices, though it also motivates them

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to create a better quality of goods and services. More production leads to more hiring, which
handles unemployment. Some economists doubt if this relationship still exists. The short-run
face-off between inflation and unemployment is a key consideration in analyzing the business
cycle. Policymakers have a task to research this trade-off using different policy instruments.
However , the stretch and desirability of such interventions are still under debate and scrutiny.
The assumption that they have a great impact on the business cycle is enough to hold water as a
controller for the trade-off.