Project in BasicMicro

Jasmin M.
Hohmann BSBA-FM 2C
BASIC MICROECONOMICS
Gregory Mankiw, in his text Principles of Economics, describes 10 principles of Economics
which are summarized below:
1) People Face Tradeoffs
To get one thing, we usually have to give up something else
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.
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. 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. As people
consume a larger quantity of goods and services, their standard of living will increase
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.
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
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.
References
1. ↑ Mankiw, N. Gregory. Principles of economics. Stamford, CT. ISBN 978-1-285-

16587-5. OCLC 884664951.
Questions to Answer:
1. Using the principles of economics mentioned by Mankiw, cite the reason/s why the peso
during the time of our great grandparents are substantially stronger as compared to our
present times where peso is considerably weaker in value.
The peso’s depreciation throughout time can be traced to a number of economic principles
outlined by economists such as Gregory Mankiw. Among the most important reasons are:
Inflation has occurred as a result of a growth in the money supply, increased production costs,
and other variables over time. Inflation erodes a currency’s real worth, making it weaker in
contrast to previous periods. Also, the value of a currency is affected by changes in supply and
demand in the foreign exchange market. When there are more pesos available or there is less
demand for them, their value falls. In addition, the strength of a country’s currency is affected by
its level of economic development and growth. If the economy is relatively poor, the currency
may fall in value. Lastly, when a country continually imports more than it exports, its currency is
under pressure. A persistent trade deficit may weaken the currency's value.
These factors contribute to a currency’s relative strength or weakness throughout time,
which is why the peso of our great grandparents’ time may have been stronger than the peso of
today.
2. Why is printing more money and give it to the poor members of the society in order to
solve poverty can never be an option for any government in the world?
For various reasons, using monetary policy to print more money and send it to the poor as a
long-term solution to poverty is not a realistic long-term option. Injecting a significant amount of
money into the economy can cause inflation. When the money supply expands faster than the
production of goods and services, the prices of these commodities and services tend to rise, thus
diminishing the purchasing power of money. This can result in greater living costs, undermining
the intended benefits for the poor. Also, direct cash transfers do not address the underlying
causes of poverty, such as a lack of access to education, healthcare, or job prospects. It has little
effect on economic growth or the long-term well-being of the deprived. In relation to this,
governments have limited budgets, and printing additional money can result in fiscal deficits and
debt accumulation, which may threaten overall economic stability and impair the government's
ability to provide public goods and services.
Policies that encourage investment, job development, education, and healthcare access are
more likely to result in economic growth and poverty reduction. In the long run, these tactics are
more efficient and sustainable than relying simply on money printing.
PROJECT
IN
BASIC
MICROECONOMICS
Submitted by: Jasmin M. Hohmann

Submitted to: Sir Andronico Zaballa

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Jasmin M.

1. ↑ Mankiw, N. Gregory. Principles of economics. Stamford, CT. ISBN 978-1-285-

Submitted by: Jasmin M. Hohmann

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