People face trade offs.
Whenever someone makes a decision , he/she is choosing between an alternatives .For example, When a person is working, its a tradeoff between work or leisure. Everyone should make compromises . In the video he describes how one person should give up upon something in order to get something else. Likewise ,he gives an example of how congress faces tradeoff between butter (consumer good) and guns (national defense). This implies that more the government spend its revenue on national defense to protect and provide good security in our borders the less he can spend on the consumer goods so as to increase the standard of living .Society as a whole faces tradeoff too .The video clearly explained this by giving an example of a coal company which hired employees when a coal production was at its peak year but the coal produced had a high silver contain which was restricted to be used because it produced acid rain. So as the company had to shutdown. Its a tradeoff for cleaner air and jobs and good livelihood for lots of people.
The cost of something is what you give up to get it.
This principle states that in your every calculations you need to mention opportunity costs. Economist Todd Buchholz has mentioned that In this world whatever you will come across , none of them are for free. The cost of doing something is not only the money but also what you give up in order to get it .For example, The cost of attending a college is not only fees. Mankiw says that the biggest cost of attending college is you spend your time there. When you attend your school and invest your time attending classes, giving exams and doing assignments you can’t invest that energy working at an occupation: For most undergraduates, the wages that they give up to go to class are the biggest single cost of their schooling. While making decisions we must make our decision keeping opportunity cost in mind . Similarly the opportunity cost varies for different persons. For example the opportunity cost for going to college of an ordinary student is relatively low because the alternative for them is a low paying jobs. Likewise the opportunity cost for an star high school basketball player Kobe bryant is relatively high as he has an alternative of going to play with an professional athletes and earn huge cash. .
Rational people think at the margin.
Econimist believes that every people or consumers are rational and they think rationally . People will like to obtain or choose those commodity and services that provides them huge satisfaction. Similarly every company wants to produce those products that will increase their profits. Numerous choices in life include incremental choices: Should I stay in school this semester?Would it be a good idea for me to ponder an extra hour for tomorrow’s exam? etc. But we as an rational consumers should make our decisions comparing marginal costs and marginal benefits. When marginal benefits exceeds marginal costs thats when an rational decision makers takes an action to get that product. The main aim of every rational people is that the satisfaction that they get by an extra unit of a commodity should be equal to the price that they are desiring to pay for it. Diamonds are costly but water isn’t. why ? because water is abundant . The marginal benefit of an extra container is littler where as diamonds are very rare and uncommon and the marginal benefit of an additional precious stone such as diamond is high .
People Respond to Incentives.
As the third principle states that people compares marginal costs and marginal benefits , their behavior will change when change in benefits and costs. Every individuals responds positively to those thing that motivates them. Every individuals will take their decisions based on the benefits or loss. Incentives will make people have an optimistic or pessimistic intent. Robert Sobel gives an example saying if he wants his son to wash his car he will be saying his son “If you wash the car you can use it tonight”. This is what will make his son to wash his car. This is incentive. Likely if he says “If you was the car i will cut the allowance. ” he will definitely deny washing it .This is disincentive. This is what this principle explains us. Another examples would be if there is no tax being applied on purchasing shoes, people are definitely buying it more and if the price of cigarettes or taxes on cigarettes are very high people many people will reduce consuming it . which proves people respond to incentives.
Trade can make everyone better off.
This principle allows every individuals to speciate in those work that he or she is best in . every individuals aren’t able to do every thing on their own . people definitely depends on on another on various things. People aren’t self sufficient . they depend on one another on various purpose . For example if I have something that you need and you have something i need , we can exchange with one another and each one of is going to have something that we wanted. fade takes place everywhere. For example it takes place in your house too . You and your family definitely traces with other people for food , clothes, homes etc. trading can help you and your family in every fundamental basis. likely , countries also are benefited trading with one other . different countries has specialized in different things . for example , France can more efficient make wines and Spain has specialized in making clothes in less time . Both the countries can exchange their product and get benefitted. hence fade can make everyone better off.
Market are usually a good way to organize economic activity.
According to Caroline hobby market is fundamentally a place in which people make exchanges and prices are determined . Market economy comprises of huge numbers of markets . Resources are allocated by firms that decides what to produce and whom to hire and households that decides what to buy and spend their income and for whom to work for. everyone interacts with each other . Adam Smith who is also known as father of economics was the first person to explain how an economy works.Market economy are decentralized and there are thousands of buyers and thousands of sellers. Adam Smith’s 1776 work recommended that despite the fact that people are encouraged by self-interest , an invisible hand manages this self-enthusiasm into advancing society’s economic prosperity.
Government can sometimes improve market outcomes.
The government has the power to adjust the results through public policy when the market will be unsuccessful to allot resources efficiently. according to Mankiw’s , Market outcomes aren’t always absolutely perfect. Major reasons why government might involve themselves in market outcomes are because the market might be unsuccessful to distribute the resources efficiently and the market might fail to allocate the resources in an equitable way . hence the government might get involved in maker so that that can correct the market failure or to achieve better distribution of income. Market might fail when an company or individual creates something that thaw an impact beyond the immediate buyers and sellers of that product.
A country’s standard of living depend on its ability to produce goods and services.
Differences in living standards around the world are dramatic.There is a huge differences in standard of living of people of various countries . Living standard changes drastically over a poeriod of time. This principle states that nations whose employees manufactures more commodity and services per unit of time have better standard of living compared to those who doesn’t. Those countries where there is huge amount of goods and services being produced have a better standard of living . hence it is said that capability of a country to produce commodity and services determines that countries standard of living. Infact if a countries productivity increases over time , the income of that country also increases and vice versa. A good example for this would be United states . There are large quantities of commodities and services produced in USA and hence the citizen of USA have better standard of living.
Price rise when government prints too much of money.
This principle states that when a nation’s government prints a huge amount of money , the country will suffer inflation. Inflation is the condition when prices grows up due to the decrease in value of money. When the value of money decreases or falls down the prices is obviously to rise up . As the government prints too much of money , there will be excessive money circulated in the country . As a result the income of every people increases which will result in more demand of goods and services. And when demand is more than supply or when those demands cannot be supplied it results increase in price which is leads to inflation.
Society faces a short run tradeoff between inflation and unemployment .