‘N. Grgory Mankiw’ has developed his principles on micro economics based on people’s decision, people’s interaction and role of economy. The following are the principle drawn by ‘Mankiw’.
✳How people make decision
i)People face trade-off: We must have to reduce the quantity of another commodity, due to the limited resources.
ii)The cost of something is what we have given up to get it: Decision maker have to consider both obvious, implicit and opportunity cost, whatever we pay to get demand goods , that is the cost of such goods.
iii)Rational people think at marginal: A rational decision maker takes an action if only the marginal benefit exceeds the marginal cost.
iv)People responds to incentives: Behavior of people changes wit the change in benefit & cost, if there is benefit>cost.
✳How the economy act as a whole
i)Trade can make everyone better-off: Trade need to expertise and specialization which finally reduce the cost & increase the quality which benefit the traders.
i)Market are the good way to organize economic activities: Market are the platform that provides maximum benefit for the producers and maximum satisfaction to the consumers as they are guided by the invisible hand.
iii)Government can sometime intervene market outcome: government can intervene through public policy when market leads toward imperfection like: monopoly, cartelling, oligopoly etc.
✳How people interact as awhole
i)A country’s living standard depend upon it’s productivity: Higher the ability to produce goods and service higher will be the living standard. Similarly, a nation’s productivity grows so does it’s average income.
ii)Price rises when government prints too much money: When government prints too much money people prefer commodity than money, which leads to rise in price level (inflation).
iii)Society face short-run trade-off between inflation & unemployment: The short run effect of change in taxes, government spending & monitary policy leads the society to face the short-run trade off between inflation & unemployment. Reducing inflation often cause in temporary rise in unemploymdst.