Principles of Macroeconomics
Part 1 Introduction: Chapter 1 Ten principles of Economics
In society resources are scarce.
Scarcity: The limited nature of society's resources.
Economics: is the study of how society manages its resources
HOW PEOPLE MAKE DECISIONS
An economy is just a group of people interacting as they go about there lives
The following are four principles of individuals decision making
Principles #1: People Face Tradeoff
An reappearing lesson to tradeoff is easily summarized by the quote," There is no such thing as a free lunch." Meaning to get on thing that we like, we usually have to give up another thing that we like.
Example 1: A student has to divide her time betweens studying for economics or psychology for every hour she spends studying for one subject she misses out on an hour she could be studying for the other Classic example of tradeoff in society
Example 2: Guns and butter ; The more we spend on national defence, the less we can spend on consumer goods
Example 3: Clean environment vs. high level of income; Theres a law that requires firms to reduce pollution which in turn raises the cost producing goods and services. The higher cost cause firms to earn smaller profits, pay lower wages, charging higher prices, or some combination of all three.
Example 3: Efficiency vs. Equity;
Efficiency; The property of society getting the most it can from its scarce resources
Equity; the property of distributing economic prosperity fairly among the members of society
In other words efficiency refers to the size of the economic and equity refers to the distribution of the economic pie.
Often times government policies end up in the conflict of one of the two. An example of this is the policies aim towards economic well being, such as the welfare system or the employment insurance. These policies lead to the redistribution of income from rich to the poor. These policies end up problematic because...