HS3002B(Random notes)
17 August 2022 10:59
How people Make Decision:
Principle 1: People face trade offs.
Principle2 : Cost of something is what you give up to get it.
Opportunity cost: What u give up to get something
Principle 3: Rational People think at the margin
marginal change: a small incremental adjustment to a plan of action
Principle 4: People Respond to incentives
-> something that induces a person to act
How people Interact
Principle 5: Trade can make everyone better off.
-> Trade allows country to specialize in what they do and enjoy a variety of goods and services.
Principle 6: Markets are usually a good way to organise economic activity.
-> market economy: an economy that allocates resources through the decentralized decisions of
many firms and house-holds as they interact in markets for goods and services.
Principle 7: Government can sometime improve market outcomes
->property rights: the ability of an individual to own and exercise control over scarce resources
-> most importantly government is needed to make institution which will enforce Property Rights.
->market failure is a situation in which a market left on its own fails to allocate resources
efficiently
->externality is the impact of one person’s actions on the well-being of a bystander
->market power is the ability of a single economic actor (or small group of actors) to have a
substantial influence on market prices
How the economy as a whole works:
Principle 8: A Country's Standard of living depends on its ability to produce goods and services
->productivity the quantity of goods and services produced from each unit of labour input.
->for the higher living standards people need higher average income and it is directly linked with
the higher productivity of products.
->all the other factors of higher living standards can be said to be secondary. Now in US the
minimum wage have surely increase the living standards but more importantly it is the
productivity of county which as increased the living standards of people and income by eightfold
in the last century.
Principle 9: Prices Rise When the Government Prints Too Much Money
Principle 10: Society Faces a Short-Run Trade-off between Inflation and Unemployment
->business cycle is fluctuations in economic activity, such as employment and production
->Sort term effects of monetary injection:
-> Increasing the amount of money in the economy stimulates the overall level of spending
and thus the demand for goods and services.
-> Higher demand may over time cause firms to raise their prices, but in the meantime, it
also encourages them to hire more workers and produce a larger quantity of goods and
services.
-> More hiring means lower unemployment
