Gregory Mankiw in his Principles of Economics outlines Ten Principles of Economics that will replicate here, they are: *People face trade-offs *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.

2. ECONOMICS
• “Economy” comes from A Greek word “Oikonomous” for
• “one who manages A household
• Economics is the study of how society manages its scarce
resources.

3. • According to Adam Smith, “Economics is the social science that
studies the production, distribution and consumption of goods and
services.”
• According to the Oxford English dictionary, “Economics is the
branch of knowledge concerned with the production,
consumption, and transfer of wealth”.

4. 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?

5. TEN PRINCIPLES OF ECONOMICS
• How people make decision
• How people interact
• How the economy as a
whole works

6. HOW PEOPLE MAKE DECISIONS
• People face trade-offs
• The cost of something is what you give up to get it
• Rational people think at the margin
• People respond to incentives

7. P-01: PEOPLE FACE TRADE-OFFS
• Trade off is a situation
that involves losing one
quality or aspect of
something in return for
gaining another quality or
aspect.

8. SOCIETY FACES TRADE OFF BETWEEN EFFICIENCY & EQUITY
• Efficiency:- society getting the most from its scarce resources.
• Equity:- Distributing economic prosperity fairly among the
individuals of the society.

9. LIFE EXAMPLE
• A student faces a trade off between studying for
exam or to watch a much awaited movie.

10. P-2:THE COST OF SOMETHING IS WHAT YOU GIVE UP TO GET
IT
• Making decisions requires comparing the costs and benefits of alternative courses of action.
• Nothing comes for free in this world. You need to give up some thing in order to gain
something.
• Making decisions requires comparing the costs and benefits of alternative courses of action.
• The OPPURTUNITY COST of an item is what you give up to get that item.

11. LIFE EXAMPLE
• Athletes who can earn millions if they
drop out of school and play professional
sports are well aware that their
opportunity cost of college is very high.
• Cricketer Sachin Tendulkar decided to
quit his education in order to play
professional cricket for his country.

12. P-3:RATIONAL PEOPLE THINK AT THE MARGIN
• A rational decision-
maker takes action if and
only if the marginal
benefit of the action
exceeds the marginal
cost.

13. LIFE EXAMPLE
• Ex : If you buy a used car, and plan to spend
$10,000, but the car is only priced at $6,000,
would you still buy it if it needed $5,000 in
repairs? of course not because
• 1) you are a rational thinker and
• 2) you would end up spending more than
you planned to.

14. P-4: PEOPLE RESPOND TO INCENTIVES.
• Incentives: Something that induces a person to act
• It may be punishment or reward
• People responds to incentive because people make
decision by comparing costs and benefits
• Incentive plays a central roles in study of economics.
• Incentives are crucial to analyzing how market work

15. LIFE EXAMPLE
• When gas prices rise , consumers buy
more hybrid cars and fewer gas guzzling
SUVs.
• When cigarette taxes increase, teen
smoking fall

16. HOW PEOPLE INTERACT
• Trade can make everyone better off
• Markets are usually a good way to organize economic
activity
• Governments can sometimes improve market outcomes.

17. P-5: TRADE CAN MAKE EVERYONE BETTER OFF
• Trade allows each person to specialize in the activities he or
she does best. By trading with others, people can buy a
greater variety of goods or services.

18. P-6: MARKETS ARE USUALLY A GOOD WAY TO ORGANIZE
ECONOMIC ACTIVITY
• An economy that allocates resources through the decentralized decisions of
many firms and households as they interact in markets for goods and services.
• Market economy: a) allocates resources b) decentralized decisions
• c) firms and households as they interact
• Households decide what to buy and who to work for.
• Firms decide who to hire and what to produce.

19. MARKETS ARE USUALLY A GOOD WAY TO ORGANIZE
ECONOMIC ACTIVITY
Adam Smith…
Firms and household
interacting in markets
“The invisible hand”

20. P-7:GOVERNMENTS CAN SOMETIMES IMPROVE MARKET
OUTCOMES.
• When a market fails to
allocate resources
efficiently, the
government can change
the outcome through
public policy. Examples
are regulations against
monopolies and
pollution.

21. LIFE EXAMPLE
• A dry cleaning factory can cause water
pollution when they dispose off used
chemicals. Government has a task of
regulating, auditing and monitoring
the activities of the market. Thus they
can introduce regulating policies to
protect the environment.

22. HOW THE ECONOMY AS A WHOLE WORKS
• The standard of living depends on a country’s
production.
• Prices rise when the government prints too much
money
• Society faces a short-run tradeoff between inflation
and unemployment

23. P-8: THE STANDARD OF LIVING DEPENDS ON A
COUNTRY’S PRODUCTION.
• Countries whose workers produce a large
quantity of goods and services per unit of
time enjoy a high standard of living.
Similarly, as a nation's productivity grows,
so does its average income.
Standard of living may be measured
• By comparing personal incomes.
• By comparing the total market value of a
nation’s production

24. P-9:PRICES RISE WHEN THE GOVERNMENT PRINTS TOO
MUCH MONEY
• When a government creates
large quantities of the
nation's money, the value of
the money falls. As a result,
prices increase, requiring
more of the same money to
buy goods and services.

25. LIFE EXAMPLE
• When there is a lot of money in circulation
in the economy, then the income of the
consumer rises and this will push up the
demand for goods and services. If
purchasing power increases it leads to
excess demand the producer will not the
able to fulfill the demand , and since
excess doesn't exist in the market, the
producer will increase the price. This will
lead to inflation.

26. P-10: SOCIETY FACES A SHORT-RUN TRADEOFF
BETWEEN INFLATION AND UNEMPLOYMENT
• Phillips curve: shows short-run trade-off
b/w inflation & unemployment.
Lower unemployment-Higher inflation.
• Inverse relation b/w unemployment & inflation.
• Monetary Policy - instruments of control.