Microeconomics
Name: Maarij Khan
Applicant ID: F19BBA14
Assessment: Midterm
Topic: 10 principles of Economics
Teacher: Sir Sheeraz Khan
Assigned Date: 12th June, 2020
Due Date: 20th June, 2020
1|Page
10 Principles Of Economics
Principle 1: PEOPLE FACE TRADEOFFS: To get something one has to sacrifice other thing.
Principles 2: THE COST OF SOMETHING IS WHAT YOU GIVE UP TO GET IT: Since
we do tradeoffs, the people generally find out the cost and benefits that their action going to incur.
For an action, one has to sacrifice something.
Principle 3: RATIONAL PEOPLE THINK AT THE MARGIN: One always does small
changes in their plan of action to achieve maximum benefits from the process.
Principle 4: PEOPLE RESPOND TO INCENTIVES: Behavior of any person or firm changes
according to the environmental variables like benefits or cost changes.
Principle 5: TRADE CAN MAKE EVERYONE BETTER OFF: Trading between parties
makes goods cheaper.
Principle 6: MARKETS ARE USUALLY A GOOD WAY TO ORGANIZE ECONOMIC
ACTIVITY: The place where the households and firm can communicate with each other for
services and goods is known as market and it is taken place under the influence of the price and
self-interest, which helps them to take decision.
Principle 7: GOVERNMENTS CAN SOMETIMES IMPROVE MARKET OUTCOMES:
Government impose some rules to improve the market.
Principle 8: A COUNTRY’S STANDARD OF LIVING DEPENDS ON ITS ABILITY TO
PRODUCE GOODS AND SERVICES: The living standard in the country is depends upon the
country producing capacity.
Principle 9: PRICES RISE WHEN THE GOVERNMENT PRINTS TOO MUCH MONEY:
Inflation is the state in which the price level increases in the economy.
Principle 10: SOCIETY FACES A SHORT RUN TRADEOFF BETWEEN
INFLATION AND UNEMPLOYMENT: Policy that are making, to reduce the inflation
led to increase in unemployment and policy to reduce unemployment led to increase in
inflation.
2|Page
Principle # 1: People face Tradeoffs
Title: Altering the COVID-19 trade-off
Source/Link: https://www.minneapolisfed.org/article/2020/altering-the-covid-
trade-off
Published on: 9th April, 2020
Summary of the Article:
This article talks about the trade off containing the disease and sustaining the economy. It further
states that how these two things are interlinked and how hard is for governments to deal with it.
If government tries to improve one of them the other one will be badly impacted. The article
suggests strategy which can result in “fewer deaths and higher output”
Excerpt:
Economic research on the COVID-19 pandemic often focuses on the apparent trade-off between
containing the disease and sustaining the economy. “Flattening the curve,” or reducing the rate of
infection so that health care systems aren’t overwhelmed, requires people to not engage in
normal social or commercial activities. That, of course, has led to severe economic disruption
and unemployment forecasts not seen since the Great Depression.
Application of Principle:
Due to the pandemic people had to chose between their health and their jobs. As the virus
increased people had to stay at their homes and cut off business activity which has a direct
impact on the economy. Several businesses have shutdown which has resulted in unemployment
of many. It can be said that people have to sacrifice their jobs and several other luxuries just to
stay alive and healthy.
3|Page
Principle 2: THE COST OF SOMETHING IS WHAT YOU
GIVE UP TO GET IT
Title: COVID-19 Crowding Out Non-COVID-19 Healthcare And Drug Development
Source/Link: https://www.forbes.com/sites/joshuacohen/2020/05/06/covid-19-
crowding-out-non-covid-19-healthcare-and-drug-development/#742bede9736a
Published on: 6th May, 2020
Summary of Article:
This article talks about how badly COVID-19 has affected different sectors which includes
health sector too. It states that due to this ongoing rapidly increasing the healthcare and drug
development department have transferred all their attention on curing virus affected patients and
coming up with a vaccine. Due to this other major health issues and life-threatening diseases are
being ignored.
Excerpt:
There is an opportunity cost of allocating nearly all available resources towards the novel
coronavirus. The dollars spent on the coronavirus can’t be used to address other diseases or
conditions. But, even as fears of accessing the healthcare system subside, nations worldwide will
still be left with the opportunity cost problem of resource allocation conspicuously skewed
heavily towards COVID-19.
Application of Principle:
This virus needs to be cured; it needs a vaccine as soon as possible. Considering how dangerous
it is, government and private organizations has putted in all their resources trying to end this
thing as soon as possible. But it comes up with a cost of neglecting other diseases and maladies.
Huge amount of money and manpower is being spent on it which could have been utilized
elsewhere. But rightly so, for now the first priority is to somehow get rid of this global pandemic.
4|Page
Principle 3: RATIONAL PEOPLE THINK AT THE MARGIN:
Title: India has to get back to business; marginal cost is far exceeding the marginal benefit
Source/Link: https://economictimes.indiatimes.com/news/economy/policy/india-
has-to-get-back-to-business-marginal-cost-is-far-exceeding-the-marginal-
benefit/articleshow/75146003.cms
Published on: 15th April, 2020
Summary of Article:
This article focuses on marginal cost and marginal benefits on India’s lockdown scenario. It
highlights the pros and cons of imposing or not imposing a full-time lockdown and its impact on
the people and the economy. It states that the marginal benefit of checking infections via an
extended lockdown (with limited economic activity) is perhaps being overestimated, and the
marginal cost of economic loss is being underestimated.
Excerpt:
The marginal cost in terms of loss of output, incomes and jobs of a prolonged lockdown that
allows very limited opening up will be very, very high.
The marginal benefit in terms of slowing the infection spread through an extended, almost-full
lockdown is probably smaller than it is being assumed. That is, such a measure may not be
necessary given certain features of the Covid-19 spread in India.
Application of Principle:
Thinking rationally, if the marginal cost is higher than it is being assumed, and the marginal
benefit is lower, the smart decision would be to open up large parts of the economy after April
20. As the marginal cost of inducing the lockdown is higher than the marginal benefit, it suggests
that the people and the economy will suffer more if the lockdown stays. Cases in India have risen
but those numbers are still extraordinarily small in a country of 1.3 billion so calling off the
5|Page
lockdown and focus on the economical activity can be taken into consideration.
Principle 4: PEOPLE RESPOND TO INCENTIVES
Title: India announces $22.5 billion stimulus package to help those affected by the lockdown
Source/link: https://www.cnbc.com/2020/03/26/coronavirus-india-needs-a-
support-package-larger-than-20-billion-dollars.html
Published on: 26th March, 2020
Summary of article:
This article talks about Indian government announcing stimulus packages worth 1.7 trillion
rupees designed to help millions of low-income households. As the government is going to
impose a 3-week lockdown and they are well aware of how are people are going to suffer from
this financially, so they have come up with package.
Excerpt:
“So, we will be giving enough to take care of their food grains requirement, protein requirement,
in terms of pulses,” she said, adding that several measures through the direct benefit transfer
scheme will also be taken “so that money reaches them.” Direct benefit transfer is an attempt by
India to ensure that subsidies reach recipients through their bank accounts so that leakages and
delays are reduced.
Application of Principle:
We all are well aware of the fact that how important is it to stay at homes and don’t go out,
however this results in many financial problems and constraints specially for the lower and
middle class. Eventually they would end up going out in search of sources of income which can
increase the number of corona cases in the nation. As people respond to incentives, government
coming up with the plan of helping the poor and the needy financially will make sure that the
people will stay indoor and follow the lockdown as their financial needs are being fulfilled.
6|Page
Principle 5: TRADE CAN MAKE EVERYONE BETTER OFF
Title: Global trade will be vital to economic recovery from Covid-19
Source/link: https://www.theguardian.com/world/2020/apr/08/global-trade-will-
be-vital-to-the-economic-recovery-from-covid-19
Published on: 8th April, 2020
Summary of Article:
This article talks about the fact that ongoing public health crisis is becoming an economical and
social crisis that demands a policy response. It highlights the main issues such as: Dozens of
emerging economies face financial and humanitarian distress, travel and tourism have collapsed
and ocean container shipping, which transports the bulk of trade in manufactured items, food,
energy and raw materials have been caught up in pandemic-related travel restrictions. It further
states that trade is the only way to recover from all this.
Excerpt:
Even as the crisis rages, governments must start planning for its aftermath. On the economic
front, this means laying the foundations for a strong and socially inclusive recovery. Trade – and
international coordination more generally – will be important ingredients here.
Application of Principle:
It can be said that the whole world has suffered from this pandemic and the only way to recover
is if the whole world works together. Trade seems like the only possible option to gain back what
has been lost. Trade restrictions should be lifted up to increase the production of urgently needed
protective equipment and ventilators. Countries need to help each other grow by trading among
them, this can boost up nation’s economy and also create employment opportunities.
7|Page
Principle 6: MARKETS ARE USUALLY A GOOD WAY TO
ORGANIZE ECONOMIC ACTIVITY
Title: The economy is reeling. The tech giants spy opportunity.
Source/link:https://economictimes.indiatimes.com/news/international/business/the
-economy-is-reeling-the-tech-giants-spy-opportunity-/articleshow/76367614.cms
Published on: 15th June, 2020
Summary of Article:
This article discusses how tech giants which includes Facebook, Amazon, Apple, Google and
Microsoft have made use of this global pandemic. Even with the global economy reeling from a
pandemic-induced recession and dozens of businesses filing for bankruptcy, these companies are
still wildly profitable and flush with billions of dollars from years of corporate dominance — are
laying the groundwork for a future where they will be bigger and more powerful than ever.
Excerpt:
Amazon, Apple, Facebook, Google and Microsoft are aggressively placing new bets as the
coronavirus pandemic has made them near-essential services, with people turning to them to
shop online, entertain themselves and stay in touch with loved ones. The skyrocketing use has
given the companies new fuel to invest as other industries retrench.
Application of Principle:
As everything is being done on internet these days, tech companies have exploited this
opportunity and are making full use of it. They have found new means of organizing economical
activity by successfully tapping new markets. All these companies have highly invested on
advancements and updates of their respective products which has increase the interest of
consumers to purchase or use them that has automatically resulted in these companies making
high profits. It can be rightfully said that they are making a fortune out of this pandemic and
raising their markets higher than ever.
8|Page
Principle 7: GOVERNMENTS CAN SOMETIMES IMPROVE
MARKET OUTCOMES
Title: Govt to hire consultant to improve textile sector soon
Source/Link: https://economictimes.indiatimes.com/industry/cons-products/garments-/-
textiles/consultant-for-textiles-soon/articleshow/76077960.cms
Published on: 29th May, 2020
Summary of Article:
This article tells us that the Indian government has decided to engage a consultant to improve the
county’s performance. The textiles ministry will hire a consulting firm to identify new
opportunities for market expansion, maintain a database on international tariffs, trade data,
growth trends, impact of international agreements and free trade agreements, installed capacity,
production and employment in the sector.
Excerpt:
“We want to appoint a consulting company. It will assist the ministry in sensitizing Indian
industry of the global market scenario and emerging trends to help identify new opportunities for
market expansion,” said an official.
The exercise is aimed at providing export intelligence and strategic support to the sector through
timely addressal of policy-related issues of all the segments.
Application of Principle:
This is a clear example of how government is trying to improve their market outcomes. As the
government saw India losing its competitive edge in global textile and apparel sector, they have
come up with a decision of appointing a consultant company which will review their previous
trades and come up with new plans for the future. As the company will look forward to market
expansion and new opportunities, India will benefit from it. Indian government is pretty sure this
decision will turn out as they want it to be and market outcomes will be improved.
9|Page
Principle 8: A COUNTRY’S STANDARD OF LIVING DEPENDS
ON ITS ABILITY TO PRODUCE GOODS AND SERVICES
Topic: The Economic Impact of COVID-19 on Developing Countries
Source/Link: http://www.ipsnews.net/2020/04/the-economic-impact-of-covid-19-
on-developing-countries/
Published on: 1st April, 2020
Summary of Article:
This article talks about the likely impacts of COVID-19 on developing economies and what
actions may be required to minimize disruptions on the poor and vulnerable. It highlights several
issues such as decrease is domestic consumer demand, foreign buyers delaying or withdrawing
orders, layoffs and delayed salary payments to employees, shortage of imported raw materials
and spare parts and governments starting to close factories and shops selling nonessential items.
The article also suggests ways to counter these issues.
Excerpt:
The severity and duration of the short-term demand and supply impacts depends on the measures
various governments take to contain the spread of the virus. If the pandemic shows signs of
spreading rapidly as it doing in Europe and the USA, Governments will start to close factories
and shops selling nonessential items.
Application of Principle:
According to the principle a country’s standard of living depends on its ability to produce goods
and services, however, as stated in the article that rapid increase in cases will result in closure of
several factories and shops. This simply means that their will be a certain decrease in the
production of goods and giving of services which will automatically bring down the country’s
standard of living.
10 | P a g e
Principle 9: PRICES RISE WHEN THE GOVERNMENT PRINTS
TOO MUCH MONEY
Title: Deficit monetization: Is it really as simple as RBI printing more money?
Source/link: https://economictimes.indiatimes.com/markets/stocks/news/deficit-monetisation-
is-it-really-as-simple-as-rbi-printing-more-money/articleshow/75968757.cms
Published on: 26th May, 2020
Summary of Article:
This article proves how printing too much money can be detrimental for a nation. It talks about
consequences of monetization on the country and its economy. It further enhances on the point
that deficit monetization also comes at a cost. An important consequence of this is that it triggers
a spike in inflation rate. In the Indian scenario, it won’t immediately translate into a higher
inflation rate due to the demand slowdown the economy is experiencing.
Excerpt:
Similarly, unlike the US dollar, Indian rupee is not considered a safe haven. Even when the US
Federal Reserve prints more currency, there is still global demand for the US dollar. However,
the same will not be the case for the rupee. Thus, when there is excess supply of the currency, it
could lead to a fall in rupee value, leading to an outflow of foreign investment. In the current
scenario, a rupee depreciation would not be beneficial for the exports sector either. The global
economy is facing.
Application of Principle:
The point that printing of large amount of money will have negative outcomes is mainly focused
in this article. It is mentioned that if there is excess supply of the currency in India, it will lead to
fall in rupee value which will result in increase of prices. The fall in rupee value suggests that it
will take a larger percentage of your income to purchase the same good or service. These
outcomes are neither good for the nation nor it’s economy.
11 | P a g e
Principle 10: SOCIETY FACES A SHORT-RUN TRADEOFF
BETWEEN INFLATION AND UNEMPLOYMENT:
Title: Op-Ed: Britain needs an economic model to guide the lifting of the coronavirus lockdown
Source/Link: https://www.cnbc.com/2020/04/29/coronavirus-uk-britain-needs-an-
economic-model-for-lockdown-easing.html?&qsearchterm=phillips%20curve
Published on: 29th April, 2020
Summary of Article:
This Article talks about when and how UK can ease lockdown restrictions and reboot their
comatose economies whilst keeping a lid on the rate of infection. In making these difficult
judgements government has to look at various number of scenarios so the scientists are currently
in the ascendancy, providing politicians with both the frameworks for making decisions as well
as the legitimacy for imposing (and lifting) restrictions.
Excerpt:
In order to help calibrate the re-opening strategy, it may be helpful to repurpose the Phillips
Curve, which traditionally plots the inverse relationship between inflation and unemployment. In
macroeconomic policy, there is an important further distinction between the short-term trade-off
between price stability and economic activity and the non-accelerating inflation rate of
unemployment.
Application of principle:
As the UK government is looking after all the factors when making the re-opening strategy, it is
very important that they look after two major factors i.e. Inflation and unemployment which are
interlinked. The Phillips curve indicates that if the govt tries decrease unemployment, inflation
increases and vice versa. As they both carry major importance in country’s economy and highly
affects the lives on people living in it, the UK government must make sure they come up with
such a strategy that take care of both the factors.
12 | P a g e
