PRINCIPLE OF ECONOMICS
Introduction:
Economics is an house hold management, it is the study of how a society manages it resources. it is derived from economy. It is sub-divided into { micro and macro economics}.
MICRO ECONOMICS: is the study of individual behavior in an economy.
MACRO ECONOMICS: is the study of the entire economy, it is the study of wide phenomenon.
Things to study in macro economy
1. How people make decision
2. How people interact with one another.
3. How the entire economy works.
ECONOMICS AGENTS
economics agents are
1. House hold
2. Firms
3. Government
ECONOMICS AGENTS : An economics agent is anybody who is capable of taking decision which have consequences which can be analysed.
House hold take decision on things to be done, house hold and economy manage scarce resources. House hold are the owners of productive resources (factors of production) and they sell it to the firm. The firms are the producer.
Government exist in other to take certain decision on-behalf of the people in the society. Economic analysis focus on how economic agent take decision on the following
1. What work to do
2. How much work to do
3. What to buy
4. How much to save out of your income
5. How much to invest.
All these decision are what individual and house hold makes. However we also focus on how people interact where buyers and sellers determine the prices.
MACRO ECONOMICS ISSUES:: includes the following
1. Output determination
2. The rate of price changes
3. Unemployment rate
4. National expenditure
5. Growth of national income.
(Inflation is the rate at which prices arise)
FEW PRINCIPLES OF ECONOMICS
1. PEOPLE FACE TRADE OFF:: A trade off is an opportunity which we give up or sacrifice in other to gain advantage of another opportunity.
2. EVERY ACTION HAS A COST:: The cost of any action is what we give up in other to be able to take that particular action, in other words the cost of an action is what is traded off to take that action.
3. RATIONAL PEOPLE CALCULATE AT THE MARGIN:: Margin means incremental changes, so rational economic agents will consider the effectiveness of small changes in their action when taking a decision on whether to adopt that particular change or not.
4. PEOPLE RESPOND TO INCENTIVES:: When economics agent take decision, they take such decision in other to achieve certain objectives, so if a business man reduces prices of product, that price reduction is an incentive to the customer. (Incentive is whatever{in form of product or service} that can make make a person react differently to their wish no matter the circumstances, it is anything that motivates economic agent to act in a particular way)
5. TRADE CAN MAKE EVERYBODY BETTER OFF OR EXCHANGE BENEFIT EVERYBODY:: exchange is beneficial because it allows people to concentrate on what they know how to do best. Exchange allows for specialisation, where exchange is possible for every participant to benefit.
6. MARKET ARE USUALLY THE BEST WAY TO ORGANISE EXCHANGE OR ECONOMIC ACTIVITIES:: The most important roles of a market is that it collect and disseminate information about the quality, quantity and the prices of product in the market.
7. GOVERMENT CAN SOMETIMES IMPROVE MARKET OUTCOME::When there is market failure the government should intervene.
Reason why market fails
A. Market fails when there is presence of externality whether in consumption or interaction. Externality could be positive or negative. It is positive when the action of an economic agent gives additional benefits to another economic agent, its is negative when the action of an agent imposes additional burden to an agent.
B. Existence of public good also cause market failure. A public goods is a good which caneconomics by anybody and not paid for. They are goods that can be broken into unit for sale. The opposite of public goods is private goods.
C. Existence of Monopoly : A monopoly is a scale produce of a product that has no substitute.
D. Non existence of market : this is a situation where there is demand for a commodity but the cost of supplying the commodity is higher than the price buyers are willing to pay.
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