BBA Principles of Economics Introduction and Meaning Notes

BBA Principles of Economics Introduction and Meaning Notes:- 

 

Diffraction of Principles of Economics

The word economy comes from a Greek word for “one who manages a household.”

 

10 Principles of economics

1. A household and an economy face many decisions:
   • Who will work?
   • What goods and how many of them should be produced?
   • What resources should be used in production?
   • At what price should the goods be sold?
2. Society and Scarce Resources:
   • The management of society’s resources is important because resources are
   • Scarcity. . . means that society has limited resources and therefore cannot produce all the goods and services people wish to
3. Economics is the study of how society manages its scarce resources.
4. How people make
   • People face
   • The cost of something is what you give up to get it.
   • Rational people think at the
   • People respond to
5. How people interact with each
   • Trade can make everyone better
   • Markets are usually a good way to organize economic
6. The forces and trends that affect how the economy as a whole
   • The standard of living depends on a country’s production.
   • Prices rise when the government prints too much
   • Society faces a short-run tradeoff between inflation and

Principle #1: People Face Tradeoffs

“There is no such thing as a free lunch!”

 

Principle 1: People Face Tradeoffs.

To get one thing, we usually have to give up another thing.

• Guns butter
• Food clothing
• Leisure time work
• Efficiency equity

“Making decisions requires trading off one goal against another.”

• Efficiency Equity
  • Efficiency means society gets the most that it can from its scarce
  • Equity means the benefits of those resources are distributed fairly among the members of

Principle 2: the cost of something is what you give up to get it.

 

• Decisions require comparing costs and benefits of
  • Whether to go to college or to work?
  • Whether to study or go out on a date?
  • Whether to go to class or sleep in?
• The opportunity cost of an item is what you give up to obtain that

Principle 3: Rational people think at the margin.

• Marginal changes are small, incremental adjustments to an existing plan of action.

” People make decisions by comparing costs and benefits at the margin. “

Principle 4: People Respond to Incentives.

• Marginal changes in costs or benefits motivate people to
• The decision to choose one alternative over another occurs when that alternative’s marginal benefits exceed its marginal costs!

Principle 5: Trade Can Make Everyone Better Off.

• People gain from their ability to trade with one
• Competition results in gains from
• Trade allows people to specialize in what they do

Principle #6: Markets are usually a good way to organize economic activity.

• A market economy is an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and
  • Households decide what to buy and who to work
  • Firms decide who to hire and what to

 

Principle #6: Markets are usually a good way to organize economic activity.

• Adam Smith made the observation that households and firms interacting in markets act as if guided by an “invisible ”
  • Because households and firms look at prices when deciding what to buy and sell, they unknowingly take into account the social costs of their
  • As a result, prices guide decision makers to reach outcomes that tend to maximize the welfare of society as a

 

Principle #7: Governments Can Sometimes Improve Market Outcomes.

• Market failure occurs when the market fails to allocate resources
• When the market fails (breaks down) government can intervene to promote efficiency and

 

Principle #7: Governments Can Sometimes Improve Market Outcomes.

• Market failure may be caused by
  • an externality, which is the impact of one person or firm’s actions on the well-being of a
  • market power, which is the ability of a single person or firm to unduly influence market prices.

 

Principle 8: The Standard of Living Depends on a Country’s Production.

• Standard of living may be measured in different ways:
  • By comparing personal incomes.
  • By comparing the total market value of a nation’s

• Almost all variations in living standards are explained by differences in countries’ productivities.
• Productivity is the amount of goods and services produced from each hour of a worker’s time.
• Standard of living may be measured in different ways:
  • By comparing personal incomes.
  • By comparing the total market value of a nation’s

 

Principle 9: Prices Rise When the Government Prints Too Much Money.

• Inflation is an increase in the overall level of prices in the
• One cause of inflation is the growth in the quantity of
• When the government creates large quantities of money, the value of the money falls.

 

Principle 10: Society Faces a Short-run Tradeoff Between Inflation and Unemployment.

• The Phillips Curve illustrates the tradeoff between inflation and unemployment:

 

Summary

• When individuals make decisions, they face tradeoffs among alternative
• The cost of any action is measured in terms of foregone
• Rational people make decisions by comparing marginal costs and marginal benefits.
• People change their behavior in response to the incentives they
• Trade can be mutually
• Markets are usually a good way of coordinating trade among
• The government can potentially improve market outcomes if there is some market failure or if the market outcome is
• Productivity is the ultimate source of living standards.
• Money growth is the ultimate source of
• Society faces a short-run tradeoff between inflation and unemployment.

Full BBA Notes All Semester 

Montey Parjapati

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