Describing economic behaviors assessing both intended

Reference no: EM133196869 , Length: 3 Pages

Assignment:

Fifteen (15) Salient Principles in Economics& Finance:

1) "No Such Thing as a "Free Lunch" - The cost of something is defined as what you give up to get it ! Basic Economics principle is: OPPORTUNITY COSTS.

2) Learn from history when defining / describing economic behaviors assessing both intended and un-intended consequences of public policy.

3) All entities (people, governments, firms, consumers, society) encounter "trade-offs"; Exists both INTENDED AND UNINTENDED CONSEQUENCES of economic policies;

4) Rational firms make rational decisions and think at the "margin" defined as incremental marginal analysis; Definition of marginal change: A small incremental adjustment to a plan of action,.

Two (2) examples:

i) Why is water (generally speaking) so cheap versus diamonds so expensive?

The marginal benefit of a good or service depends on how many units a person already has. Because water is so plentiful, the marginal benefit of an additional cup of water is small. Conversely, since diamonds are rare (scarcity), the marginal benefit of an extra diamond is high;

ii) Suppose you are considering calling a friend on your cell phone and the marginal benefit of the 10 minute call is $7.00. Your cell phone costs you $40 per month plus an additional $.50 per minute. You typically talk for 100 minutes and have a monthly bill of $90. If you consider the average cost of the call, you would decide that the benefit of this 10 minute call does not exceed its costs ($9.00).

However, the marginal cost of the call is only $5.00 so the marginal benefit of the call does outweigh its marginal cost. Cell phone users who have unlimited minutes (free at the margin) often make long and frivolous calls.

5) Entities and people respond to incentives better than penalties;

6) Markets are usually the preferred way to organize / assimilate economic activities;

7) Acting and performing in one's direct, "Self Interest" best supports society's overall needs / interests; See reference to Adam Smith, Wealth of Nations, 1776 !

8) Government (Federal, State & Local) can sometimes improves market outcomes and the impacts of externalities ("third party effects");Beware of both intended and un-intended consequences to society as a result of government public policy!

9) A country's standard of living(wealth accumulation and distribution) depends on it's ability to produce goods and services and prioritizing needs and wants given finite resources (land, labor, capital, management expertise).Concept is worker & capital productivity !

10) Prices rise (inflate) when governments print to much money, and when taxes are levied causing output to diminish and prices to rise. Inflation drives the "real" purchasing power of the currency down, which acts as a direct, regressive tax on those who have the least. Inflation also reduces the "real rate of return" on invested financial capital and creates a disincentive for savers.....

11) In the short run, there may existtrade-offs between inflation and unemployment; Will discuss short-run versus long-run behaviors.

12) "Equality of opportunity does not mean Equality of Outcome" ! Equality of outcome is antithesis to a market driven economy. Hard work, discipline, transparency, accountability and knowledge ultimately drives opportunity and success.

13). Creation of wealth & risk undertaking: Focus on private property rights including private ownership of the factors of production which generate factors of income. Private property rights drives wealth creation, vested ownership rights (equity), and conservation.

14) ‘TESDBOY': Exists direct tax impacts(correlations) among the various concepts in society: T = Taxes, E = Elasticity (Degrees of Consumer & Business Sensitivity to Price Changes), S = Shifting (Forward or Backward; Or Some "%"), D = Deadweight Loss (Market Inefficiency), B = Behaviors & O= Outcomes (Macro, Micro & Financial) = "Y" = GDP & Nation's Income.

15): Financial capital & capital in general is dynamic, in motion 24 / 7, throughout the world. Capital including (yes, labor) migrates to those regions of the world (hence "markets"), where the actual "real" rate of return (net of inflation / deflation, currency appreciation / depreciation, regulation / capital controls, taxation & sustainability) is the highest.

Goal is to haveinteractive "team-based" discussions and projects relevant to the "real world" learning about economic & financial markets. Associated with the class, will encourage (if requested) "live" or digital meetings with all of you. In our meetings, we will collectively discuss progress, efforts and feedback / perspectives.

Reference no: EM133196869

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