This Assignment deals with the Ten Principles of Economics and their applications to different scenarios. Each scenario below practices one of the 10 principles of economics. Match the principles to the appropriate scenario listed and justify your answer. Each principle will only be used once. Refer to chapter one for the details on the ten principles of economics.
Ten Principles of Economics:
- People face tradeoffs.
- The cost of something is what you give up to get it.
- Rational people think at the margin.
- People respond to incentives.
- Trade can make everyone better off.
- Markets are usually a good way to organize economic activity.
- Governments can sometimes improve market outcomes.
- A country’s standard of living depends on its ability to produce goods and services.
- Prices rise when the government prints too much money.
- Society faces a short-run tradeoff between inflation and unemployment.
Even though generally more expensive, energy efficient appliances and vehicles sell better with a rebate or tax credit.
Answer: People respond to incentives.
People make decisions by comparing costs and benefits.
Airlines will charge a fee for each additional suitcase you may want to take with you on a trip.
Answer: Rational people think at the margin.
Rational people do the best they can to achieve their objectives, given the available opportunities.
At a restaurant, when ordering an entrée, you get to choose two side dishes from a group of five side dishes.
Answer: The cost of something is what you give up to get it.
When people face trade-offs, making decisions means comparing costs and benefits of actions.
Instead of growing your own food and making other necessities you decide to specialize in a profession and purchase things, even things that you would have not been able to make yourself.
Answer: Trade can make everyone better off.
Trade between two countries can make each country better off. People gain from their ability to trade with one another.
There is an incredible variety of goods and services available at many different price points even though no single entity or government is deciding or dictating the market what to do.
Answer: Markets are usually a good way to organize economic activity.
Firms decide whom they hire and what to make and households decide which firm to work for and what to do with their income.
In its effort to limit the effects of rising inflation, the Federal Reserve System reduces the quantity of money in the economy, but sees an increase in unemployment.
Answer: Society faces a short-run trade-off between inflation and unemployment.
As inflation rises, unemployment decreases and vice-versa. Fluctuations in economic activity, employment and production.
While consuming the same number of farmers’ labor and capital, the newly developed hybrid crops achieve twice the yields of the previous crops.
Answer: Governments can sometimes improve market outcomes.
When the government must intervene in the economy to promote efficiency and equity.
You have noticed that the same amount of money buys you fewer goods and services than it did a year ago.
Answer: Prices rise when the government prints too much money.
Inflation is an increase in the overall level of prices in the economy. When the government creates large quantities of money, the value of the money falls.
You worked for extra pay on a holiday and therefore missed out on your neighbors’ barbeque.
Answer: People face tradeoff
Sometimes we must sacrifice to get what we want or need.
Two major suppliers of powdered baby food formula are challenged by government on grounds of price fixing.
Answer: A country’s standard of living depends on its ability to produce goods and services.
Nations where workers produce a large quantity of goods and services enjoy a higher standard of living, while nations with less productive workers enjoy a lower standard of living.
Mankiw, N. G. (2015). Principles of Macroeconomics, 7th Edition. [Kaplan]. Retrieved