10 Principles of Economics
The shortage is
supported in the world. "It is just not enough what whatsoever" says
the presenter; There is not enough money and time. For this reason we must
decide how to allocate these shortages. "Decision-making is the essence of
the economy", said Gregory Mankiw, every day we take decisions and choices
that help us distribute our shortages. "The economy is the study of
mankind in the ordinary Affairs of life" said almost one hundred years by
Alfred Marshall. Gregory Mankiw said that quote "capture saving
perfectly" and for this, he studied the decisions that we take to deal
with the cause of shortages, make us decisions and choices every day, when we
go shopping and choose what to buy, because there is a shortage of money, when
we go to work and to choose the number of hours at work because there is a
shortage of life and etc. We are having an impact and shape our economy for
every decision we make.
1. The special agreement
As we make decisions, we
make compromises, which mean that we choose something on something else, or we
have to give up something to get something else. Decisions such that to have a
child involve a trade-off between money for yourself and money to buy the
child, its needs; It is also trading off time, since you give your personal or
free time to time to give to the baby. In the film, a very good example of
compromise is indicated. It shows a student who wants to move to Washington
when he finished College and abandoned from time to time that it uses for the
study tests or examinations, time to seek a job in Washington. Preferring its
priorities rather than others it is faced with a compromise. The society as a
whole also involves trade-offs. the Government must choose how much money to
use in certain areas of the country. Something that I personally liked and made
me think of was when the film shows how to deal with compromised even in the
environment, "we all want cleaner air but the compromise can mean the loss
of income or even the loss of jobs for some Americans," said the
presenter. I did not understand the relationship between these two until they
are talking about a company of coal in Ohio that had to be stopped because it
was to be harmful to the environment, the consequences? More than a thousand
people have lost their jobs, the community has decided to have a cleaner
environment, but the compromise was the loss of the use of all these people.
2 Opportunity cost
What you sacrifice to
get something is its cost. The presenter and Gregory Mankiw explain this
principle with a student. By choosing to go four years in College, student
costs are many. There is the cost of the money it spends in the books and
tuition and also the 'opportunity costs' as said by Mr. Mankiw, because since
she decided to go to College it gives the opportunity to obtain employment and
wages of labour that it would have taken. "Nothing comes for free, our
time is something interesting", said Todd Buchholz an economists that
makes you realize that a cost of something is not always involved with money;
the cost of something you can be as simple as spending time with their loved
ones. This segment of the contrast film to situations where the opportunity
cost varies, is an example how the opportunity cost of a student is relatively
low, given that the student is to abandon low paying jobs, but the opportunity
cost for a talented high school athlete has offered to go directly to
professionals is very high, because if he decides to go to College he gave up
millions of dollarsIt would affect being a professional athlete.
3 Marginal thinking
A rational person as
shown in the film the student think at the margin, when administered too
College work instead of leaving work that earns his money for his personal
expenses, it cuts simply return a bit on working hours. It is not radical; It
fits instead of finishing, she thinks of the margin. Another good example is
that of a Broadway, which sometimes run empty seats. Thinking at the margin,
that they decide to negotiate with the public and sell them seats at half
price, a few hours before the show instead of the empty seats in the show.
Adjust the price of the ticket actually wins the theatre more revenue because
even if it is them earning 50% of the initial cost, which is greater than zero,
if the seats would have remained empty. Being rational and thinking about
better margin decisions and choices are possible.
4. Incentives
When the cost and
benefits of something, edit or change our decisions change too. "If I want
my son to wash my car, that I'll say that if you was my car you can use it
tonight, it is an encouragement", says Robert Sobel from Hofstra
University and for me is the best explanation for incentives. The incentive is
that it can use the car tonight, in other words, he has to say yes, but if they
were not all incentives, it will probably in doubt. A very good example, they
overlook the way in which we respond to incentives and applies to the situation
today, is that of how we response to gasoline prices. In Europe, the price of
gasoline is very high, this incentive makes people buy more small and more than
economy cars, unlike America, whose price is still relatively low and people
buy big cars and vans. Did not notice that the stores and streets were crowded
week of «free» tax here in Florida? That's because people respond to
incentives, incentives that benefit; Obviously, you'll make more shopping if
you go step be taxed. When President Clinton was in office, he asked the price
of cigarettes climb by a dollar and a half, because it has been shown that
young people would not buy cigarettes and smoke. It's a perfect example of a
deterrent because it discourages young people from smoking. Another explained
is the behavior that some people take incentives. Nowadays safety belts are
necessary because it is proven to save lives but on the other hand «there is
that behavior changes in response to these safety belts» said Mr. Gregory,
since some people exceed speed limits, because they feel more secure.
5 Trade
Since we are not
self-sufficient, we negotiate. "People specialize; people make special
tasks and depend on others to perform other tasks for them,"says Mr
Gregory. A Hairdresser trades for example its service (i.e. cutting hair) for
money, and the other person relies on it the hairdresser to get his haircut.
"" The idea of: I have something and you have something and if we
exchange we'll both be better off, is basically what the economy is all about
"says Caroline Hoxby." We as humans humans and in order to survive we
negotiate, we exchange, we rely. This is explained in another example shown in
the movie. We have in a group of specialized farmers to grow the food for us,
we both enjoy get us food and they are paid to produce food. Countries also
trade among themselves when they sell each other products they are good to make
cheaper. We negotiate every day to survive.
6. The markets
Markets, agreements are
made and prices are set, which are then communicated to the world. In food the
market farmers sell their wares, and the owners of supermarkets buy then sell.
Another type of market is the market of the stamp. Mark Easter, as a stamp
dealer explains that this is like the stock market where dealers go to the
highest price offered. The first person who explains how a market system was
that adam Smith the grandfather of the economy has published the first book on
the economy, called "Wealth of Nations" in 1776. How buyers and
sellers interact and not create chaos? Adam Smith said "that markets are
guided as if by an invisible hand at least a desirable allocation of
resources." We all have interest, and if we all try to do this, we'll all
be happy. The invisible hand is explained in the film with Mr. Sobel as an
example, he said, "if I have a $25 and you have a good and you want to
sell it to me, we both win, you wanted the $ $25 more than the good and I
wanted good more than $ 25 million. '' The key to the invisible hand are prices,
sellers and consumers depend on them. When Communism fell in Russia and Eastern
Europe, it has shown that the free market is the best way to work, because
people know what they want, how to want it, how they want to buy and etc.
7. The Government
Sometimes, the
Government is involved in developing better results. This happens when one of
two things happens. Firstly if the result of market is not effective, and
secondly if it is unable to distribute the income effectively. In many cases,
the externality is the cause of the failure. "Externality is when a
company or an individual creates something that has an impact beyond the
immediate buyers and sellers of this product. Power plants are obviously users
and buyers of electricity, but it also has an externality because the smoke
produced by them can affect the health of a person. Market power may also lead
to market failures, since a certain services company or person is non-standard
and can control and influence prices. When the market is not just the Government
also intervenes. Some people paid for their other services; This is something
that cannot be controlled by the invisible hand. When the Government gets
involved is because the situation is very complicated, more complicated it
gets, more it gets from the Government to fix.
8. Productivity
Statistics show that, in
1998, the average American has an annual income of $31,500, the Mexican average
of $8,300 and the average Indian $ 1700. You will notice that their quality of
life is not the same for example Americans live better than Indians.
Productivity explains everything; a rich country produces more than a poor man.
And productivity depends on skills, capital and etc. If a country has a well
educated workforce, productivity will increase. Economic freedom means more
productivity. A perfect example is the United States and Hong Kong, where
people are free to use their brains to create goods, services or ideas that can
be taken to the market where consumers take advantage of them.
9 Inflation
It basically means
inflation, which means that prices rise to reflect all the money that is to be
print. Printing money is something that must be controlled because although it
might ' temporarily make people feel richer» as told by Todd Buchholz, at one
point prices will begin to rise, and it will be very difficult to resume
controlled inflation will come into play. Stability of goods and money is the
best way to keep inflation below.
10. The Phillips curve
The President of the
federal reserve is supposed to maintain low unemployment and inflation under
control. Mr. Mankiw stipulates that you cannot achieve these two objectives at
the same time and that the instrument of policy is money. When we go to the top
of it falls down, and vice versa, this is called the Phillips curve. As shown
in the film, that it is a short performance compromise, you choose on top the
other. But nowadays this compromise does not really exist because inflation
last year and unemployment has fallen. This does not mean that the Phillips
curve would not come in the game again, some economists say that it will be.
Understanding these ten
principles is the key to understand the concept of eco
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