Principles Of Macroeconomics

Principles of Macroeconomics.

TEN PRINCIPLES OF ECONOMICS.

The word economy comes from the Greek word for “one who manages a household”. At first , this origin might seen peculiar. But, in fact, households and economies have much in common.

A household faces many decisions. It must decide which members of the household do which tasks and what each member gets in return : Who cooks dinner? Who does laundry? Who gets the extra dessert at dinner? Who gets to choose what TV show to watch? In sort, the household must allocate its scarce resources among its various members, taking into account each member’s abilities , efforts, and desires.

Like a household, a society faces many decisions. A society must decide what jobs will be done and who will do them. It need some people to grow food, other people to make clothing , and still others to design computers software. Once society has allocated people (as well as land, building and machines) the various jobs, it must also allocate the output of goods and services that they produce. It must decide who will eat caviar and who will eat potatos . It must decide who will drive a Ferrari and who will take the bus.

The management of society’s resources is important because resources are scarce. Scarcity means that society has limited resources and therefore cannot produce all the goods and services people wish to have. Just as a household cannot give every member everything he or she wants, a society cannot give every individual the highest standard of living to which he or she may aspire.

Economics is the study of how society manages its scarce resources. In most societies , resources are allocated not by a single central planner but through the combined actions of millions of households and firms. Economist therefore study how people make decisions : how much they work, what they buy, how much they save, and how they invest their savings. Economist also study how people interact with one another. For instance, they examine how the multitude of buyers and sellers of a good together determine the price at which the good is sold and the quantity is sold. Finally economists analyze forces and trends that affect the economy as a whole, including the growth in average income., the fraction of the population that cannot find work., and the rate at which prices are rising.

Although the study of economics has many, facets, the field is unified by several central ideas. In the rest if this chapter, we look at the principles of economics. Don’t worry if you don’t understand them all at first or if you don’t find them completely convincing. In the coming chapters we will explore these ideas more fully. The ten principles are introduced here just to give you an overview of what economics is all about. You can think of this chapter as a “ preview of coming attractions .

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