Question

Which two of the “Ten Principles of Economics” left the biggest impression on you?

Essay should be in the range of 250 to 450 words.

The Mankiw textbook, Mankiw lists “Ten Principles of Economics” and offers and explanation as to what they are and why are they important.

Answer 1

The two principles that left biggest impression upon me, are as follows:

1. Rational people conduct marginal analysis in their decisions and actions

2. Government and its institutions  can bring improvements in market outcome

The first principle is about the marginal analysis adopted by the rational people and it deals with the marginal benefits and marginal cost of any action or decision. People and managers in the firm, always evaluate the outcome of any action in terms of the benefits gained and cost incurred. The action is taken as long as the marginal benefits are higher than the marginal costs. It is an important analysis because it helps managers or individuals to maximize the profit and help gain maximum wealth. For example, a manger in a monopolistic or monopoly firm always produces to the level where MR = MC. It makes firm to get profit maximizing output. So, it is an important principle.

The second principle is the government intervention to correct the market. Here, the government implements discretionary fiscal policy to stimulate the demand and help market recover and grow. It should be well known that it was policy inaction during 1930s that led to the creation of great depression, still remembered in today's time. If government could have acted swiftly, then US economy could be saved from disaster of that time. So, it is an important principle and government should intervene. It was the government intervention to the tune of $787 Billion after 2008 financial crisis that led to the recovery of US economy. Further, this principle is also important because it helps in preventing market failure. For example, externality problems and free rider problems are solved when government applies taxes or subsidies and allocate private ownership respectively. It also corrects the market outcome and make it more socially efficient.

So, these two principles have important and lasting impressions .