Economics · Classes 9-10 · Chapter 1 · 1.4

Ten Principles of Economics.

Spend the evening on economics and the Bangla homework waits; switch on the TV and the football waits too. Choosing always means giving something up. Mankiw's ten principles grow out of that plain fact. In a creative question the story changes but the ask does not: which principle is this?

1. The ten principles at a glance

Resources are scarce and wants have no limit, and a society has to get by between the two. The economist Gregory Mankiw set out ten fundamental principles for living with that squeeze in his popular economics textbook.

1. People face trade-offs
2. The cost of something is what you give up to get it (opportunity cost)
3. Rational people think at the margin
4. People respond to incentives
5. Trade can make everyone better off
6. Markets are usually a good way to organize economic activity
7. Governments can sometimes improve market outcomes
8. A country's standard of living depends on its ability to produce
9. Prices rise when too much money is printed
10. Society faces a short-run trade-off between inflation and unemployment

2. To get, you give up

Principle 1 (trade-offs): to get something we like, we must give up another thing we like. More time on economics means less on Bangla or English. Watching TV leaves no time for sport. If the government spends more of its budget on the military, it must spend less on education and other civil sectors.

Principle 2 (opportunity cost): of all the opportunities you give up, the most valuable one is the opportunity cost. Going to school means you cannot help your father at home and support the family financially. That lost chance is the opportunity cost of your education.

One stretch of time, four uses. Pick one, then see what you gave up, and which of those is the opportunity cost.

3. A little more, a little less

Principle 3 (marginal thinking): people weigh a little more or a little less, which is called thinking at the margin. Should I eat a little more at the wedding? I got an A, will a little more study make it an A+? Both are marginal thoughts.

Eat three bananas in a row and the third is the marginal banana. The satisfaction you get from it is the marginal utility. The money you spend to get it is the marginal cost.

A rational person eats the marginal banana only when marginal utility is greater than marginal cost. With fictional numbers, utility 40 and cost 30, you eat. Change the numbers and see what happens when the two are equal.

4. Incentives, trade, prices and the government

Principle 4 (incentives): people do a job more carefully when they get an incentive. A promise of a bicycle for GPA 5 makes studying more exciting. Workers produce more when they are given incentives.

Principle 5 (trade): the US makes cheap cars and we make cheap clothes. Trade clothes for cars and both sides gain.

Principle 6 (markets): the price of a good in the market is set by the interaction of firms and households, that is, by demand and supply.

Principle 7 (government): the market runs on the signals of an invisible hand, the automatic price system made of many people's choices. But the invisible hand does not always work well, and then government intervention becomes necessary.

The government steps in in four kinds of place: supplying public goods (education, health, law and order, electricity); where resources are being used badly; stopping monopolies from piling resources in one place; and protecting society from pollution and corruption.

5. Production capacity sets the standard of living

Principle 8: in countries whose people can produce more goods and services, the standard of living is higher and so is per capita income. Because their production capacity is high, people in developed countries get, on average, better food, better health care and better civic facilities. Workers become more efficient too: in less time and with less effort they make far more goods and services.

The book quotes the per capita income of two countries from the World Bank. The Bangla Version gives, for 2023, US $82,769.4 and Japan $33,766. The English Version gives, for 2020, US $63,051 and Japan $41,637. Match the year and the figures to the edition you study from.

6. Printing money, prices and jobs

The central bank holds the printing press. Keep the goods the same, print money, and watch the price.

Principle 9: the power to print money sits with the central bank. If it prints too much, inflation follows: the price level rises and the value of money falls.

The book's example: study materials that cost 500 taka now cost 650 taka after inflation. The extra cost is 650 − 500 = 150 taka. Change the prices and see.

Principle 10: a rise in the price level of goods and services is called inflation. A worker who is willing to work at the market wage but cannot find work is unemployed.

In the short run inflation and unemployment sit at the two ends of a seesaw. Push one end and watch the other.

In the short run inflation and unemployment move in opposite directions. When inflation falls, unemployment rises; when inflation rises, unemployment falls. Tap a cell in the grid.

7. Match numbers to stories

The exam calls a principle by its number, so first put the ten in the book's order. A wrong tap tells you which number that principle really is.

Now the other way round. Read a case, name the principle in your head, then tap to check.

8. Check yourself

Three questions in the exam's style. Start with the first.

Now the second.

And the last.

The whole note on seven cards.

Source: Economics, Classes 9-10 (NCTB), Chapter 1 “Introduction to Economics”, section 1.4.