This document discusses the principles of microeconomics, including trade-offs, costs, incentives, and the role of government. It also explains the law of comparative advantage and how it benefits trade partners. References are provided for further reading.
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MICROECONOMICS1 Economics Principles ï‚·People Deal with Faceoffs To get something, we need to give up or leave anything else. Going to a party just night before the exams, results in leaving lesser time for studying. ï‚·Cost of something is what you give up to get it In order to take decisions it is necessary to compare the benefits and costs of substitute action (Hamilton, 2018). Attending college yearly is not all about fees, and books, but it comprises the foregone wages. ï‚·Rational people think at the margin People take decisions by computing the marginal benefits with the cost. In the morning if a person purchases a coffee cup as it refresh the mind to start the day, but purchasing another cup will offer no extra benefit. ï‚·People respond to incentives Changes take place in the behaviour of the person with there are changes in the benefits or costs. If the hourly wages of the labor rises then he/she likes to work more. ï‚·Trade can make everybody better off Trade enable an individual to gain the expertise in anything that they do best. Through trading, that individual can purchase number of services and goods.
MICROECONOMICS2 A person can be an accomplished consultant. The money that is earned through consultation work could be utilized to construct a house even if that person does not have any type of skills to construct the house. ï‚·Markets are better way to establish economic activity Firms that work in the economy react to the prices and thus perform like being assisted by invisible hand which directs the market to assign resources. If the market is dealing with oversupply situation of wheat across in the world then the famers will decrease the price till they can vend all the wheat. ï‚·Government can occasionally recover market results Occasionally the market can fail in assigning the resources properly, and regulations of the government could be utilized to enhance the results. Failure of the market can be due to monopolies, externalities, and public goods (Spencer, 2011). The supplier of electricity can have the monopoly in the market. Regulations of the government might be needed in order to confirm that the supplier do not misuse its power. ï‚·Living standard of the nation is based on the capability to manufacture goods Nation with workers manufacturing huge number of goods per unit will live high living standard. ï‚·Increase in prices the time government prints money in large amount Money printing results in inflation. The time money is printed by the government, there is increase in the money quantity and hence the value of each unit of money decreases. The outcome is more money is needed to purchase goods.
MICROECONOMICS3 ï‚·Society deals with short-term tradeoff between unemployment and inflation Falling inflation mostly results in provisional increase in unemployment. This tradeoff is said to be the key aspect in understanding the influence of short-term alterations in monetary policy, spending of government, and taxes (Spencer, 2011).
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MICROECONOMICS4 Law of Comparative Advantage Comparative advantage is the capability of the economy to manufacture services and goods at lower opportunity cost in comparison to trade partners. According to the law of comparative advantage, it is a vital principle of the discussion that all the actors, at all times, can equally benefit from voluntary trade and cooperation (Rothbard, 2012). For instance -The well-known athlete like Michael Jordan, is one of the known base-ball and basketballstar.He isthe excellentathletewhosecapabilitiesexceedfrom other individuals. Michael Jordan can paint his house very fast due to his capabilities and height. Hypothetically, he can paint his house in 8 hours. In those same 8 hours he can also do different advertisement and can earn $50,000. In comparison to this, the neighbour of Jordan, Joe can pain the same house in 10 hours. In the same time duration Joe can work at a restaurant and can earn $100. In the above example, Joe has the comparative advantage, even when Jordan can paint the house quickly. The best trade can be for Jordan to work in the advertisement and pay Joe for painting the house. The time Jordan earns $50,000 and Joe $100, the winner in this situation is trade. Considering the skills diversity, Joe and Jordan will find this arrangement best for their shared benefit (Rothbard, 2012).
MICROECONOMICS5 References Hamilton, M. (2018).An Explanation of the Ten Principles of Economics. Retrieved from https://bizfluent.com/info-7880863-explanation-ten-principles-economics.html Rothbard, M.N. (2012).The Ricardian Law of Comparative Advantage. Retrieved from https://mises.org/library/ricardian-law-comparative-advantage Spencer,T.(2011).Mankiw’s10PrinciplesofEconomics.Retrievedfrom https://www.spencertom.com/2011/11/23/mankiws-10-principles-of-economics/ #.XKmHw1UzbIU