Economic principles refer to the ideas that govern the principles of economic life. According to Harvard Professor N. Gregory Mankiw, these principles may be consolidated under 10 heads and refers to how the economy works and what factors influence the economic decisions of people.
This principle stems from the scarcity of resources. Thus one must decide how to distribute these scarcities. When we make economic decisions, we are obliged to give up something in order to have something else. Choosing to make a particular economic decision over another involves a tradeoff.
[...] The costs and benefits of using the tram were influenced by lowering the tram fare in summer. A commuter would compare the costs and personal benefits resulting from this initiative and would therefore be more likely to take the tram or bus. Principle No. Trade 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. The rules that govern trade determine the nature of an economic system. [...]
[...] The existence of a market power The ability to influence prices qualifies an agent to be considered as Market power. An example of a market power is a monopoly where the company has the ability to set prices owing to a lack of competition. In these cases, government intervention in the economy may be justified to improve market outcomes. The intervention of the state is thus legitimized. Principle No.8: Productivity The productivity of a country determines the living standards of its citizen. [...]
[...] An increase in the quantity of currency in circulation results in inflation. There are three causes of inflation: Demand-driven inflation This occurs when demand exceeds supply. For example: A rise in the demand for fruits and vegetables will result in higher prices of these products. Inflation generated by production costs When the production costs of a company increase, it tries to pass the burden on the consumer by increasing the price of its products. There are two main factors which may influence a rise in costs i.e. [...]
[...] Section 2 - the principles of macroeconomics Principle No. The role of the Government When a market fails to allocate resources efficiently, the government can change the outcome through public policy. Examples are regulations against monopolies and pollution. Possible causes of market failure are: The existence of externalities Externalities refer to a situation in which the act of consumption or production of an agent is positively or negatively dependant on the situation of another actor not involved in the action. [...]
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