There are ten principles of economics briefly discussed
here.
1. People Face Trade-offs
To get something that we like, we must sacrifice some other
thing that we like. To give an example, if you spend all of your time studying
economics, you will have to keep off from studying Chemistry
or Accounting.
Similarly, if you are watching television, you will not be able to spend time
for playing. If the government is spending more for the military sector in the
budget, then it is reducing its expenditure in other civil sectors including
education sector. That means, man, in the society, chooses an alternative for a
trade-off.
2. Opportunity Cost
If you are spending time at school for your studies, then
you cannot help your father for his works at home. By the way, if you were
involved in any economic activity at home, your family would have been
benefited monetarily from that. But at that time you are studying at school.
Here, not to be able to work at home for your studies is the opportunity cost
of studies.
3. Rational People Think at the Margin
Rational people think at the margin. After the feast at a
wedding ceremony some of you think that it would have been better if you could
eat a little more, and some others think that it would have been better to have
eaten a little less. This little more to eat or little less to eat is the
marginal eating. Let us suppose, you achieved an A in one subject, you would
feel that if you had studied a little more you could have obtained an A+. Man
also thinks of marginal advantages and disadvantages. For example, you ate
three bananas one after another. The third banana is the marginal banana.
Eating the marginal banana, the satisfaction you earned, that is known as the
marginal utility. To have that third banana, the money that you have spent is
known as the marginal cost. As a rational being, you will eat the marginal
banana only when the marginal utility will be greater than the marginal cost.
4. People Respond to Incentives
Inspiration or incentives play an important role for every
task. Man gets incentives and therefore, performs the job with better care. If
your father tells you that he will buy you a cycle if you can obtain a golden
A+, inevitably the enthusiasm in you for your studies will be enhanced.
Similarly, in Economics, if the laborer gets incentives, he produces more.
5. Trade can make everyone Better-Off
Ford in the United
States, and Toyota in Japan are two much
renowned companies in the world for car trading. There is enough commercial
competition existent between these two companies. To draw the attention of the
general customers, both of the companies offer various conveniences and reduce
prices to occupy the market. Through the process of these commercial
activities, the United States and Japan, both are profited, on the other hand,
people can buy cars at a lesser price.
6. Markets are usually a Good Way to Organize Economic Activities
Economic activities are organized by the market system. The
reciprocal actions and reactions between the farms and households discern the
price of any good. Owners of the farms supply goods observing the market
demands and numerous households buy these goods and services as per their
income and needs.
7. Government cans sometimes Improve Market Outcomes
The market system is run by the signal of the 'invisible
hand'. But always it does not turn out to be correct. For many reasons, the
invisible hand fails to work perfectly. In these situations governmental
interventions become a must. Inability to proper utilization of resources,
environment pollution and corruption, to be saved from factors like these, the
interference of the government is necessary.
8. A Country's Standard of Living Depends on Its Ability to Produce Goods
and Services
The standard of living of the people of those countries is
high whose capabilities for producing goods and services are better. The
production capacity of the people of the developed countries is much better
which is the reason why their per capital income is much higher ($37,500 in the
United States and $35,200 in Japan). As a result they attain better food,
better healthcare, and better civic facilities. Working capacity of the laborers
also grow.
9. Prices Rise When the Government Prints Too Much Money
The power to print money rests in the hands of the central
bank. If the central bank is printing too much money than inflation occurs,
that means the price level of goods rises. Inflation causes the value of money
to fall. For example, you can get the necessary materials for your studies
spending $500. When the value of money diminishes, you will have to spend $650
to get the same materials, which is $150 more ($650 - $500) than the previous
$500.
10. Society Faces a Short-Run Trade-Off between Inflation and Unemployment
The rise in the price level of the goods is known as
inflation. And the laborers who are willing to work at the market wages but are
failing to get a job-they are the unemployed. When inflation decreases,
unemployment rises. On the other hand, when unemployment diminishes, inflation
increases.
Circular Flow of Income (the two sectors)
There are two types of agents in a strong economy, consumer
or household and producer or farm. How the income and expenditure flow in a
circular motion between these two types of agents that is shown here by the
diagram below.
 |
| Circular Flow of Income |
In the diagram of the circular flow of income, it is shown
that the farm obtains the necessary materials for its production (land, labor,
capital) from the households. In exchange of these the members of the
households get rent, wage and interest from the farm. Here, what is the
expenditure of the farm and that is the income of the household. And the
households spend that income earned to buy the goods produced by the farm which
is the income of the farm. This way the circular flow of the income and
expenditure between the farm and the household or between the national income
and national expenditure remains persistent.
End
0 comments:
Post a Comment