10 Principles of Economics

6483 Words Dec 12th, 2014 26 Pages
10 Principles of Economics
Supply and Demand * Supply and demand are inversely proportional: When supply rises, demand falls. For instance, when the housing market in a certain region is flooded with homes for sale, sellers drop the price to attract a buyer. However, single homes for sale in exclusive neighborhoods might have more potential buyers than sellers. In these instances, the price of the home rises.
Inflation and Unemployment * Gregory Mankiw, Harvard Economics professor and author of "Principles of Economics" explains that society experiences a short-run trade-off with rising prices and unemployment: As the monetary supply expands and inflation occurs, unemployment rises. However, the Phillips curve indicates that in
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Simply put, consumers try to "get the most bang for their buck." Consumers make decisions to buy luxury, normal or inferior goods based on their income.
Perfect Competition * The textbook, "Business Economics" states perfect competition occurs when there are many firms selling identical products. The firm accepts the market price, and is not a price-maker.
Monopolies
* Monopolies occur when firms are able to set the price of a specialized good or service due to limited or no competition. The firm is a price-maker and consumers must accept the price due to no alternatives.
Oligopoly
* Oligopolies are small groups of firms offering a similar good or service. Game theory suggests the price of these goods remains at or below a competitive price because each of the firm tries outbidding the other to gain market share. Examples of oligopolies include airlines and cable companies.
Negative Externalities * Negative externalities are an external consequence of an action. Pollution and waste are good examples of a negative consequence caused by companies who pay no price for these consequences.
The Ten Principles of Economics Part 1: The Four Principals of Decision-making
Here I will break down the principals into three sections and briefly explain them from my point of view. The first four basic principles of economics are on how people make decisions on the individual level.
Principal 1: People face trade-offs.
This means