Limits and Potentials of the Economic Policies Established by Various Institutions - Example

Anwar Bashaikh Jamie Falcon ECON101 November 26, Principles of Economics Gregory Mankiw currently a of economics at the Harvard studied economics while at Princeton University. The teacher also taught macroeconomics, microeconomics, statistics, and principles of economics in the past (Gregory 2012). His definition of economics was the society management of resources that will normally be scarce. Economists, therefore, study the people’s decision-making patterns. For example, how much an individual will work what they will buy, and finally what they will save for future investment? He, therefore, came up with a number of principles that would vividly explain what economics is all about. (Gregory 2012). Introduction Economic policies seek to maximize the exploitation of the limited resources in order to increase the shareholders wealth. This paper intend to enable one understand the world we live in and the behavior of our economy (Parker, 2008). The study will help understand the limits and potentials of the economic policies established by various institutions. 1. People face Trade-offs. This is giving in order to receive; in the example is an individual deciding to devote time to studying for a particular subject. Every period used in studying would have been employed in another form. This is what he refers to as trade off. Laws established by regulatory bodies requiring firms to reduce pollution as they produce goods and services in turn raise the production cost (Parker, 2008). As a consequence of elevated manufacture costs, the companies end up earning lesser profits, and the small profits lead to payment of lower wages, charging higher prices to consumers. Thus, despite the fact that environmental contamination policies give the benefit of a cleaner surrounding and the better-quality health of citizens, the regulations come at the charge of decreasing the earnings of the controlled organisations owners, workers, and customers. 2. The cost of a commodity is what one give’s up to get it The cost of an item is equal to the cost one trades off to get the commodity. This is because one compares the costs and benefits of alternatives courses of good or service. For example, while making a decision to either go to college and attain intellectual enrichment at a given cost or leave school and spend the fee in a luxurious life. The opportunity cost of an item is the cost foregone to acquire another piece. When making economic decision, managers ought to be conscious of the opportunity costs that go along with each imaginable decision made (Gregory 2012). 3. Rational people think at the margin According to Laurence Sideman and Gregory economist, will usually assume that people are rational. A reasonable person will do his best to achieve his goal, or objective gives favorable working conditions. A rational decision maker takes an action if the marginal benefit expected exceeds the marginal cost (Gregory 2012). 4. Response to incentives Incentives induce people to act in a particular manner. They can either be in the form of punishments or rewards. Considering the case where, the price of an apple rises, consumers will buy fewer apples. At the same time, apple orchards will tend to increase production thus hiring more labor force and gather additional apples. High market prices provide incentives for consumers to consume fewer and suppliers to produce extra (Parker, (2008). The above principles are essential to the management on their decision-making criteria. They guide the managers to making the most appropriate decisions. This policy will enable the business to monitor the market efficiently and identify the opportunity cost available thus making the right tradeoffs and at the right season to ensure a fluent flow of trade. 5. Trade can make Everyone Better off Business interactions are very essential to the management of every company. Managers must be able to identify their competitors. For example, both the American and the Japanese economies tend to be significant competitors because they tend to produce similar goods like motor vehicles (Gregory 2012).Trade competition is not the same as a sports game where one party will eventually lose. On the contrary, trade against countries will better each party. 6. Markets in Organizing Economic Activities Organizations select what kind of personnel to fire to work for them and also what type of commodity to produce. In return, households make their decision on where to work and what to buy with their incomes (Gregory 2012). 7. Governments on Improvement of Market Outcomes Government contributions and formulations and implementation of policies that affect economic development are essential to the learning of economic principles. 8. Standards of Living and Ability to Produce Goods and Services The existing level of a particular country is determined by its capability to produce goods and services that will sustain its population. 9. Prices and increased Government Prints of Money In nearly all cases, experienced persistent inflation has been as a result of growth in the quantity of money by the government. When a government fails in monetary policies and makes large amounts of money, the value of the money goes down thus the rise in prices of the commodities in the economy (Gregory 2012). 10. Short-Run Tradeoff between Inflation and Unemployment Another effect of increase supply of money rather than the high level of prices in the long run, a short-run effect is a story more complicated and controversial rise in unemployment levels. Economic Parables Recession The parable of economics (Seidman 1988) defines a recession as the time the gross domestic product of an economy fall. It is at this time that organizations are at their lowest economic production. At the date of the recession, workers are laid off, and the country experiences high levels of unemployment. Increase in payments is little to those that still remain in employment. At the point of Recession College, graduates seeking full-time jobs face difficulties in finding them. U.S has rate 5.5 % (www.tradingeconomics.com) of people without a job out of 1000 persons. Unemployment is present even in healthy economies because people will always quite their jobs for better ones as employers also fire employees for poor performance. Demand and supply are major determinates of inflation and recession. One point about supply deserves emphasis: that is the height of the provision of the supply curve reflects the cost of production. In the event that the price of producing goods goes up the supply curve shifts up also and if the value decreases the supply curve shift down. As the change in demand and supply changes the total output and price also changes. The rise in price is typically referred to as inflation. The fall in output is called recession. A drop in output leads to a decline in employment. To fight recession Fed induced banks to cut interest rates they charge households and business, thereby encouraging borrowing and spending. Thus, the shifting the demand curve towards the right, for banks to reduce their interest they need to have more money in their systems. This is achieved through open market operations or by buying government bonds from the public. The sellers of bond deposit cheque in their banks, these banks in turn request the similar amount of Fed as that on the cheques. The economic model The economy consists of a vast number of people undertaking the activity of procurement and retailing of goods and services. Individuals and organizations interrelate in two categories of markets. In the case of a market, buying and selling of goods and services, the households are seekers of the products and services while the organizations are the providers of the products and services. In general, individuals purchase the output of goods and services that firms produce. In the provision of factors of production, independent persons are the providers of the services, and organizations buy from them. In this kind of a market, the individual will provide the inputs required by the firm to produce goods and services that they will later sell to the household. Microeconomics and Macroeconomics The field of economics is conventionally alienated into two broad categories (Laurence 1988). Macroeconomics and Macroeconomic; Microeconomics is the study of how individuals and organizations make decisions and the way they interact with one another in particular markets. Macroeconomics is the study of economy-wide phenomena (Sattora, 2010). A micro economist might consider the impression of overseas antagonism on the U.S. auto industry with that of the Japan, while a macro economist will major on the effects of financial borrowing by the federal government, or other different policies that would promote growth living standards of individuals The circular model : The circular economic movement The circular flow diagram suggests a simpler way of understanding the organizational, financial dealings that are carried out amongst the households and businesses in the economy. The two rings of the circular flow diagram are divergent but are rather related to each other. The inner ring characterizes the movement of inputs and outputs to the economy (Laurence 1988). Individuals trade their labor, land, and capital to the organizations in the markets as the factors of production or economic resources (Sattora, 2010). The organizations, on the other hand, then make use these financial recourses to produce goods and services that are desirable to the people, the buyers of these goods turn out to be the households in the markets. The outer ring on the illustration indicates the resultant flow of money in the economy. Individuals spend the money they earn from provision of the factors of production to purchase goods and services from the producing organizations. The money received by groups from the sale of products and services is the revenue generated. Organization will then use their revenue to pay for the factors of production. Whatever is left is profit of the firm owners, who are still members of the household (Laurence 1988). Economic growth and production Economy’s Gross Domestic Product is a measure of both the total income earned in a country and the total expenditure in the same country for goods and services. An economies standard of living is subject to its capability to produce goods and services (Sattora, 2010). The productivity of the economy in turn is determined by its physical, workforce, natural resources and technological advancement. Their lack any compromise that these matters are the most significant in the study economics. Recommendation In according to Gregory (Principles of Microeconomics (2012) study of economics is essential to every economy as people are able to make rational decision and thus it thus recommendable for individuals to plan for the future, ability to foresee future economic patterns will help handle the diverse effects in times of economic downturn. Conclusion In relation to this approach of economic issues and contexts, microeconomics usually utilizes a bottom-up approach that initially focuses towards consumers before progressing towards an analysis of an entire economy (Sattora, 2010). However, Macroeconomics utilizes a top-down perspective that initiates procedures by analyzing top economic entities such as governmental effects before progressing downwards gradually to a consumer. Word Cited Gregory, N. Principles of Microeconomics, Sixth Edition, Economic Affairs Mankiw, 2012. Laurence, Seidman, Economic Parables and Policies, Second Edition Thompson Southwestern: M.E. Sharpe, 1988. Read More