Principles of Economics ,,,,,,,,,,,,,,

Principles of Economics ,,,,,,,,,,,,,,


09-20-2012, 07:41 PM


  » http://sudaneseonline.com/cgi-bin/esdb/2bb.cgi?seq=msg&board=12&msg=1348170103&rn=0


Post: #1
Title: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 09-20-2012, 07:41 PM

Economy

The word economy comes from a Greek word for “one who manages a household.”

Post: #2
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 09-20-2012, 07:44 PM
Parent: #1

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?

Post: #3
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 09-21-2012, 07:26 AM
Parent: #2

Society and Scarce Resources (Scarcity):

* The management of society’s resources is important because resources are scarce.
* Scarcity means that society has limited resources and therefore cannot produce all the goods and services
people wish to have.

Post: #4
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 09-21-2012, 07:32 AM
Parent: #3

Simple definition of economics

"Economics is the study of how society manages its scarce resources"

Post: #5
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 10-02-2012, 06:30 AM
Parent: #4

There are a lot of debates on the above simple definition of economics. Socialism supporters do not believe on the scarcity of resources and so do the supporters of Islamic Economic but the reason for the believe here is quite different. While socialism concentrates on what we can call it "Equity" a terminology widely used in economics to stand for the equality in distributing resources between people, Islamic Economic supporters don't have any conflict with inequality of resources or production distribution between people as far as Islam Principles allow inequality in (Alrizq distribution between human beings) which is pre-decided by our God only, however they don't believe on scarcity claiming that (as Islam said) our God made (Alrizq) available for all his creatures and servants and each creature has got his written stake of (Alrizq).
Any how we will come to discuss these debates in a later stage within this post meanwhile we will continue explainig the principles of economics based on one of the most outstanding economic book named (Principles of Economics, Third Edition by N. Gregory Mankiw and presented by Mark P. Karscig, Central Missouri State University) it is realy one of the best introduction and approach to economics i have recently glanced at.

Post: #6
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 10-03-2012, 06:23 PM
Parent: #5

Now let us go through Mankiw's 10 principles of economics:

We can categorise his 10 principles into three main headings as follows:

(A) How people make decisions:

Principle (1); People face tradeoffs:

This principles means that; to get one thing, you have to give up something else making decisions requires trading off one goal against another, for instance, to work additional hours you have to sacrifice part of your leisure time, to go for pros you have to forgo higher education (LA Laker basketball star Kobe Bryant, for instance, chose to skip college and go straight from high school to the pros where he has earned millions of dollars),,,
In short (“There is no such thing as a free lunch”)


Post: #7
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 10-03-2012, 06:41 PM
Parent: #6

Principle (2) The cost of something is what you give up to get it:

It means that; Decision-makers have to consider both the obvious and implicit costs of their actions ,,, sacrifice, whether tangible or intagible, it is measurable, quantifiable, and can easily be transfered to figures (or dollars). It is quite obvious that this principle is somewhat linked to the preceding one ,,, and also still (“There is no such thing as a free lunch”)

Post: #8
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 10-03-2012, 06:56 PM
Parent: #7

So to get one thing, we usually have to give up another thing:

Guns v. food
Food v. clothing
Leisure time v. work

Means decisions require comparing costs and benefits of alternatives:

Whether to go to college or to work?
Whether to study or go out on a date?
Whether to go to class or sleep in?

and so on ,,,

Post: #9
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 10-03-2012, 07:16 PM
Parent: #8

Within both two principles Mankiw (as a supporter of Market economies) allow tradoffs between "Equity and Efficiency"
where by "Efficiency" he means society gets the most that it can from its scarce resources economically, and, by "Equity"
the benefits of those resources are distributed fairly among the members of society, which is quite controversial. Are they
(Efficiency & Equity) in a disaccord or disharmony and can not equally or fairly actualized simultaneously in the same economy???
we will come to discuss this later ,,,

Post: #10
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 10-09-2012, 07:35 PM
Parent: #8

Principle (3): Rational People Think at the Margin:

It means that people usually, and sometimes without knowing, make decisions by comparing costs and benefits at the margin:

* Marginal changes are small, inremental adjusments to an existing plan of action ,,,
* A rational decision-maker takes action if, and only, if the marginal benefit of the action exceeds the marginal cost

For instance, a car manufacturer decides to make one more car if its marginal benefit (earning) exceed its marginal cost



Post: #11
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 10-12-2012, 10:07 AM
Parent: #10

Principle (4) People Respond to incentives:

It means that;

* Marginal changes in costs or benefits motivate people to respond.
* The decision to choose one alternative over another occurs when that
alternative’s marginal benefits exceed its marginal costs!

Post: #12
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-05-2012, 03:58 AM
Parent: #11

Principle (5); Trade Can Make Everyone Better Off:

It means that;

* People gain from their ability to trade with one another.
* By trading with others, people can buy a greater variety of goods or services.
* Competition results in gains from trading.
* Trade allows people to specialize in what they do best.

Post: #13
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-05-2012, 04:14 AM
Parent: #12

Principle (6) Markets Are Usually a Good Way to Organize Economic Activity:

* A market economy is an economy that allocates resources through the decentralized decisions
of many firms and households as they interact in markets for goods and services:

1- Households decide what to buy and who to work for.
2- Firms decide who to hire and what to produce.

* Households and firms that interact in market economies act as if they are guided by an "invisible hand"
that leads the market to allocate resources efficiently.
* The opposite of this is economic activity that is organized by a central planner within the government. 

Note: At the current stage we are not talking about which is fair (Market Economies or Government Economies)
We will come to talk about that in a later stage. Let us just consider Economics as a pure science only

Post: #14
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-05-2012, 04:18 AM
Parent: #13

Principle (6) Markets Are Usually a Good Way to Organize Economic Activity:

* Adam Smith made the observation that households and firms interacting in markets act
as if guided by an “invisible hand”;

1- Because households and firms look at prices when deciding what to buy and sell, they
unknowingly take into account the social costs of their actions.
2- As a result, prices guide decision makers to reach outcomes that tend to maximize the
welfare of society as a whole.

Post: #15
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-05-2012, 04:28 AM
Parent: #14

Principle (7) Governments Can always Improve Market Outcomes:

* Market failure occurs when the market fails to allocate resources efficiently.
* When the market fails (breaks down) government can intervene to promote efficiency and equity.
* Examples are regulations against monopolies and pollution.
* Market failure may be caused by:

1- An Externality, which is the impact of one person or firm’s actions on the well-being of a bystander.
2- Market power, which is the ability of a single person or firm to unduly influence market prices.

Post: #16
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-05-2012, 07:51 AM
Parent: #15

Principle (8) The Standard of Living Depends on a Country’s Production:

* Standard of living may be measured in different ways:

1- By comparing personal incomes.
2- By comparing the total market value of a nation’s production.

* Almost all variations in living standards are explained by differences in countries’ productivities.
* Productivity is the amount of goods and services produced from each hour of a worker’s time.

Post: #17
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-05-2012, 07:55 AM
Parent: #16

Principle (9) Prices Rise When the Government Prints Too Much Money:

* Inflation is an increase in the overall level of prices in the economy.
* One cause of inflation is the growth in the quantity of money.
* When the government creates large quantities of money, the value of the money falls.

Post: #18
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-06-2012, 04:27 AM
Parent: #17

Principle (10) Society Faces a Short-run Tradeoff Between Inflation and Unemployment:

* Relationship between Inflation & Unemployment is negative;

1- When Inflation up Unemployment down and vise-versa.
2- Sometimes this relationship be a positive one “when Inflation up Unemployment up” which occurred
only in the least underdevelopment countries like Sudan.
3- This scarce positive relationship between Inflation and Unemployment used to be called “Stagflation”.
4- The current economical situation in Sudan is typical Stagflation.

* The Phillips Curve illustrates the tradeoff between inflation and unemployment on the way that when
inflation up unemployment down and vise-versa. It’s usually a short-run tradeoff!

Post: #19
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-15-2012, 06:01 PM
Parent: #18

Now, after we presented Mankiw 10 principles, we turn to discuss
the most important concept that any one wants to study economics
Has to know, that is;

"How to think like an Economist"

Every field of study has its own terminology:

* Mathematics:
- Integrals , Axioms , Vector Spaces

* Psychology:
- Ego, ID, Cognitive Dissonance

* Law:
- Promissory, Estoppels, Torts, Venues

* Economics also has its own language such like:
- Supply, Opportunity Cost, Elasticity, Consumer Surplus, Demand,
Comparative Advantage, Deadweight loss, inflation, Monopoly ...etc.

Post: #20
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-15-2012, 06:05 PM
Parent: #19

Economics trains the person how to;

* Think in terms of alternatives;
* Evaluate the cost of individual and social choices;
* Examine and understand how certain events and issues are related;

Post: #21
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-15-2012, 06:07 PM
Parent: #20

The economic way of thinking;

* Involves thinking analytically and objectively;
* Makes use of the scientific method;

Post: #22
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-15-2012, 06:14 PM
Parent: #21

The Scientific Method means Observation, Theory, and More Observation;

* It uses abstract models to help explain how a complex, real world operates;
* It develops theories, collects, and analyzes data to evaluate theories;

Post: #23
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-19-2012, 04:32 AM
Parent: #22

The Role of Assumptions:

* Economists make assumptions in order to make the world easier to understand.
* The art in scientific thinking is deciding which assumptions to make.
* Economists use different assumptions to answer different questions.

Post: #24
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-19-2012, 04:36 AM
Parent: #23

Economic Models:

* Economists use models to simplify reality in order to improve our understanding of the world;
* Two of the most basic economic models include;
1- The Circular Flow Diagram (Circular Flow of Icome)
2- The Production Possibilities Frontier (Curve)

Post: #25
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-19-2012, 05:06 AM
Parent: #24

The Circular-Flow Diagram:

Is a visual model of the economy that shows how dollars flow through markets among households and firms.

1- Firms;
* Produce and sell goods and services
* Hire and use factors of production
2- Households;
* Buy and consume goods and services
* Own and sell factors of production
3- Markets for Goods and Services;
* Firms sell
* Households buy
4- Markets for Factors of Production;
* Households sell
* Firms buy
5- Factors of Production;
* Inputs used to produce goods and services
* Land, labor, and capital
6- The main economic sectors are:
* Households
* Business (Firms)
* Financial Sectors (Long & short-term capital markets)
* Government
* Overseas (Import/Export)
To simply understand how dollar flow between all above-mentioned economic sectors just follow the link;
Factors of Production;


Post: #26
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-20-2012, 04:03 AM
Parent: #25

The Production Possibilities Frontier (PPF);

It is a graph that shows the combinations of output that the economy can possibly produce
given the available factors of production and the available production technology.

Post: #27
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-20-2012, 04:06 AM
Parent: #26

Concepts Illustrated by the Production Possibilities Frontier;

* Efficiency
* Tradeoffs
* Opportunity Cost
* Economic Growth

To understand the concept of PPF you can follow the following link;


Post: #28
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-20-2012, 04:10 AM
Parent: #27

Another simple example to explain the PPF;


Post: #29
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-21-2012, 04:56 PM
Parent: #28

Microeconomics and Macroeconomics

1- Microeconomics;

* Focuses on the individual parts of the economy;
* How households and firms make decisions and how they interact in specific markets;

2- Macroeconomics;

* Looks at the economy as a whole;
* Economy-wide phenomena, including inflation, unemployment, and economic growth ...etc.

Post: #30
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-21-2012, 04:58 PM
Parent: #29

THE ECONOMIST AS POLICY ADVISOR

* When economists are trying to explain the world, they are scientists.

* When economists are trying to change the world, they are policy advisor.

Post: #31
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-21-2012, 05:02 PM
Parent: #30

POSITIVE VERSUS NORMATIVE ANALYSIS:

1- Positive Statements;

* Are statements that attempt to describe the world as it is;
* Called Descriptive Analysis;

2- Normative statements;

* Are statements about how the world should be;
* Called Prescriptive Analysis;

Post: #32
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-21-2012, 05:08 PM
Parent: #31

Positive or Normative Statements?

1- Examples POSITIVE statements;

* "An increase in the minimum wage will cause a decrease in employment among the least-skilled"
* "Higher federal budget deficits will cause interest rates to increase"

2- Examples NORMATIVE statements;

* "The income gains from a higher minimum wage are worth more than any slight reductions in employment"
* "State governments should be allowed to collect from tobacco companies the costs of treating smoking-related illnesses among the poor"

Post: #33
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-21-2012, 05:13 PM
Parent: #32

1- WHY ECONOMISTS DISAGREE:

* They may disagree about the validity of alternative positive theories about how the world works;
* They may have different values and, therefore, different normative views about what policy should try to accomplish;

Post: #34
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 11-22-2012, 04:32 AM
Parent: #33

Ten Propositions about Which Most Economists Agree

Proposition (and average of economists who agree)

1-A ceiling on rents reduces the quantity and quality of housing available. 93%
2-Tariffs and import quotas usually reduce general economic welfare. 93%
3-Flexible and floating exchange rates offer international monetary arrangement. 90%
4-Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant simulative impact on a less than fully employed. 90%
5-If the federal budget is to be balanced, it should be done over the business cycle rather than yearly. 85%
6-Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. 84%
7-A large federal budget deficit has an adverse effect on the economy. 83%
8-A minimum wage increases unemployment among young and unskilled workers. 79%
9-The government should restructure the welfare system along the lines of a "negative income tax". 79%
10-Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. 78%

We will come to discuss some of these propositions in a later stage

Post: #35
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: mohamed hussein
Date: 11-28-2012, 04:49 AM
Parent: #34

Ustaz HABANI, I am pleased to go over this fantastc post, but by accident. I would love to see iit in the arabic version of the board, in the language of your prefrence indeed,l. And please accept my deepest apreciation to your work.

Post: #36
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: mohamed hussein
Date: 11-28-2012, 04:51 AM
Parent: #34

Ustaz HABANI, I am pleased to go over this fantastc post, but by accident. I would love to see iit in the arabic version of the board, in the language of your prefrence indeed,l. And please accept my deepest apreciation to your work.

Post: #37
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 12-02-2012, 08:26 PM
Parent: #36

Quote: Ustaz HABANI, I am pleased to go over this fantastc post, but by accident. I would love to see iit in the arabic version of the board, in the language of your prefrence indeed,l. And please accept my deepest apreciation to your work.


Thanks Dear Mohammed Hussein for your valuable comments. In fact the work actually belng to Manckiw, on behalf of whom, I'm trying my best to introduce his best book (principles of Economics) in a simple way. I have already posted this material in the Arabic Board one month ago but could not see any response. It will be highly appreciated if you could try to do that yourself.
Meanwile i will keep presenting Manckiw intersesting ideas in this post with the same approach aiming to give those who have no economics background to understand what economics is.
Thanks and best regards

Post: #38
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 12-16-2012, 05:34 PM
Parent: #34

Interdependence and the Gains from Trade:

* Consider your typical day:

** You wake up to an alarm clock made in Korea ,,,
** You pour yourself orange juice made from Florida oranges and coffee from beans grown in Brazil or Kenya ,,,
** You put on some clothes made of cotton grown in Georgia and sewn in factories in Thailand ,,,
** You watch the morning news broadcast from New York on your TV made in Japan ,,,
** You drive to work in a car made of parts manufactured in a half-dozen different countries ,,,

* And you haven’t been up for more than two hours yet!!!

* Remember;

** "Economics is the study of how societies produce and distribute goods in an attempt to satisfy the wants and needs of its members"

Post: #39
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 12-16-2012, 05:39 PM
Parent: #38

* How do we satisfy our wants and needs in a global economy?

** We can be economically self-sufficient ,,,
** We can specialize and trade with others, leading to economic interdependence ,,,

* Individuals and nations rely on specialized production and exchange as a way to address problems
caused by scarcity;


* But this gives rise to two questions:

** Why is interdependence the norm?
** What determines production and trade?

Post: #40
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 12-16-2012, 05:44 PM
Parent: #39

* Why is interdependence the norm?

** Interdependence occurs because people are better off when they specialize and trade with others ,,,

* What determines the pattern of production and trade?

** Patterns of production and trade are based upon differences in opportunity costs ,,,

Post: #41
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 12-16-2012, 05:51 PM
Parent: #40

Imagine !!!

* Only two goods: Potatoes and Meat !!!
* Only two people: A Potato Farmer and a Cattle Rancher !!!
* What should each produce?
* Why should they trade?

Post: #42
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 12-20-2012, 08:40 PM
Parent: #41

So if the productions opportunities of the Farmers and Runcher are as follows;

[/IMG]

* It is quite obvious that the time within which a Farmer and Runcher produce 1 oz of meat and potatoes respectively represent
the only given prodiction cost and so;
* 1 oz of meet cost the Farmer 60 minutes while 1 oz of potatoes cost him 15 minutes so in 8 working hours he can produce 8 oz
of meat or 32 oz of potatoes; and;
* 1 oz of meat cost the Runcher 20 minutes while 1 oz of potatoes cost him 10 minutes so he can produce 24 oz of meat or 48 oz
of potatoes in 8 working hours.

Post: #43
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: عبدالعظيم عثمان
Date: 12-29-2012, 10:08 AM
Parent: #42

thank you ustaz alhady

i'm following you and read this post
if possible please continue,

can you explain the derivatives market ,the daynamic and how they afect the commodity prices?

Post: #44
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 01-07-2013, 02:17 PM
Parent: #43

Thanks dear Abdualzeem and deeply sorry for the delay. I have been very busy for the last two weeks
and will continue summarizing the Principles of Economics with the same simple way.
I have been thinking to write about derivatives in a separate post long time ago hope to find enough time.
Until i start the post you can take a glance at one of the best recent books about the last international
financial crisis and the unfair international financial system by one of the best Latin Amercan Economists called Laurance kotlikoff.
The name of the book is (Jimy Stewart Dead) within which you can know a lot about derivatives. Katlikoff succeeded in
simplfing one of the most complicated subjects in a wonderful pleasntry and comedy way. Just search google using either the name
of the writer, the name of the book, or both and enjoy.

Post: #45
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 01-19-2013, 07:06 PM
Parent: #44

What is the Production Possibilities for both Farmer and Rancher;

1- Self-Sufficiency

By ignoring each other:

* Each consumes what they each produce and so;
* The production possibilities frontier is also the consumption possibilities frontier so;
* Without trade, economic gains are diminished.

Post: #46
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 01-19-2013, 07:11 PM
Parent: #45

2- Specialization and Trade;

- The Farmer and the Rancher Specialize and Trade

* Each would be better off if they specialized in producing the product they are more suited to produce,
and then trade with each other.

- The Farmer should produce potatoes and;
- The Rancher should produce meat;

Post: #47
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 02-12-2013, 06:17 PM
Parent: #46

So if there is no trade the farmer production possibilities frontier would be as follows;
[/IMG]

So the the best choice for the farmer as can be seen from the chart is to produce:

1- 16 ounces of Potatoes and;
2- 4 ounces of Meat as another possible choice

Post: #48
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 02-12-2013, 06:28 PM
Parent: #47

And in the same time the Rancher Production Possibilities Frontier will take the following shape;

[/IMG]

So the best choice for the Rancher as can be seen from the chart is to produce:

1- 24 ounces of Potatoes and;
2- 12 ounces of Meat as another possible choice

Post: #49
Title: Re: Principles of Economics ,,,,,,,,,,,,,,
Author: الهادي هباني
Date: 02-12-2013, 06:43 PM
Parent: #48

So the final output without trade will be as follows;

[/IMG]

We have to note here, that the concept of "Production and Consumption", means that both Farmer and Rancher consume what they
produce because there is no trade