Have you ever read a book by Gregory Mankiw about 10 principles of Economics?
If no, Alessandro Rocco Pietrocola advises you to read this article where he outlines the most significant principles that rule global economy and it will help you to have a better understanding in it!
So, in his Principles of Economics outlines Ten Principles of Economics that we will replicate here, they are:
1. People face trade-offs
What does it mean? Simply, there is no free things, to get one, we usually have to give up another thing that we like. Making decisions requires trading one goal for another.
As an example – the more government invest on national security, the less it can invest on consumer goods.
This is like the balance – if you give in one side, you lose something in another one.
2. The cost of something is what you give up getting it
The first principle leads to a conclusion that making decisions requires comparing the costs and benefits of alternative courses of action.
The cost of…
…seeing a movie is not just the price of the ticket, but the value of the time you spend in the theater. This time you could have spent on another thing. This is the actual cost this principle explains
Or whatever you have to give up getting the thing you want – this is your opportunity cost and it should be considerate when making a decision.
3. Rational people think at the margin
Rational people shall make decisions by comparing marginal benefits and marginal costs.
4. People respond to incentives
Because rational people make decisions by comparing costs and benefits, they respond to incentives. A bar might offer a buy one, get one free drink. Incentive can be negative as well, like a tax on a fuel.
5. Trade can make everyone better off
Countries benefit from trading with one another as well.
6. Markets are usually a good way to organize economic activity
Before going deeply let’s understand what is market economy.
Market economy: an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services. Market prices reflect both the value of a product to consumers and the cost of the resources used to produce it.
7. Governments can sometimes improve market outcomes
The government may help if the market efficiency isn’t working or if the market is failing to distribute. This failure is often caused by externality, which means that the product impacts more than just the direct buyers and sellers.
8. A country’s standard of living depends on its ability to produce goods and services
This principle means that high productivity (the quantity of goods and services produced from each hour of a worker’s time) implies a high standard of living. What does it mean? If we want to increase the living standards, we need to raise productivity. To raise productivity, it is necessary to educate workers, provide them with good tools and best technology.
9. Prices rise when the government prints too much money
This principle refers to inflation. Prices go up increase to reflect the amount of money being printed. When government prints too much money, inflation causes prices to go up and that money loses some of its value.
10. Society faces a short-run tradeoff between Inflation and unemployment.
Actually, if we increase the amount of money then the economy stimulates spending and increases the demand of goods and services in the economy. Companies need to hire more workers to produce those goods. More hiring means lower unemployment.
Alessandro Rocco Pietrocola is an entrepreneur and investor based in London and operating mainly in Europe, Asia and Oceania with main focus on UK, Baltic Countries, Russia, China, Hong Kong, Malaysia, Singapore, Middle East and New Zealand as area of interest! At the moment is the CEO of Astorts Group. He is an UK FCA (Financial Conduct Authority) Approved Person and is has great experience as director of regulated companies. He uses to dedicate part of his life to inspire others and help them achieve the most out of their life. Since he was 20, he had successfully founded and managed several companies operating in the field of management consulting, wealth management and fintech. He loves travelling; he is a cigars lover, an amateur golfer and a dapper man.