principle Econ assignment

1 Assignment Course Name: Principle of Economics Course Code: LGUD-123 Submitted To Mahidul Islam Assistant Professor Department of Local Government and Urban Development At Jatiya Kobi Kazi Nazrul Islam University Submitted By Shahariyar Afrad Siyam Galib Hasan Md Yakub Nubiya Orty Umme Maria Sharmin Opy Doli Fabiha Bushra Session: 2022-2023 Group: A Date of submission 18 September 2024 Department of Local Government and Urban Development Jatiya Kobi Kazi Nazrul Islam University.

2 Index 1. Introduction --3 page 2. Trade-off3-4 page a) Definition of Trade-off3 page b) Example of Trade-off- 3-4 page 3. Opportunity cost of seeing movie- 4-5 page 4. Marginal benefit 5-6 page a) For a well hydrated person -- -5 page b) For a dehydrate person 5 page c)For a person in a water- source environment -- 6 page 5. Policymaker 6-8 page 6. Trade-- 7-8 page 7. Invisible Hand8 -9 page 8. Market failure 9-10 page a) Positive market failure- -9 page b) Negative market failure 10 page 10. Productivity -10-11 page 11. Inflation11-12 page a) Reason of inflammation -- --11 page 12. Conclusion - 12 page Introduction:.

3 In economics, trade-offs and opportunity costs play crucial roles in decision-making. When choosing to spend time or money on activities like seeing a movie, individuals must weigh the benefits against the potential gains they forgo in other areas, such as working extra hours or engaging in alternative leisure activities. The principle of marginal benefits helps us understand how the added satisfaction from each additional unit—like another hour of leisure—diminishes as we allocate resources. Policymakers often grapple with these trade-offs, aiming to balance productivity and inflation to stabilize the economy. Meanwhile, the "invisible hand" of the market, a term coined by Adam Smith, suggests that individual self-interest can lead to positive economic outcomes. However, market failures—situations where the market does not efficiently allocate resources—can disrupt this balance. Addressing these failures and enhancing productivity while managing inflation are key challenges in economic policy. ❖ Give three example of important trade-off that you face in your life. Trade-off: A tradeoff is when you choose one thing is which causes you to have to give up on sacrifice another in economics, a trade-off in defined as an opportunity cost- Then I show you three examples of important trad-off that I face in my life. 1. Sometime as a student I have to decide between studying and attending a social event. If I choose to study, I have to give up the opportunity to socialize Conversely, If I attend the social event, I have to trading-off study time. 2. On my last vacation I got a chance to attending a tour with my childhood friends so I have to miss the opportunity to spending a quality time with my family. Conversely, If I was spending my vacation with my wan family friends I then I was sacrificing my tour with my friends..

4 Figure 01: Trade-off 3. Two months ago, I take varsity to go to a day off from my varsity to go to a concert, going to opportunity of seeing my favorite band, while losing a day's wages band, as the cost for that opportunity. ❖ What is the opportunity cost of seeing movie? Opportunity Cost: Opportunity cost refers to as that you have to give up to buy what you want in terms of other goods on services. The opportunity cost of seeing movie involves the time and resources that a person used in watching a movie an opposed to another activity. The other activity Could be-- * Time spent working on studying * Time spent with family or friends *Time that could be used for a hobby on exercise * Potential earnings on productivity *Also, the money spent to see that movie could have been use to purchased other thing like pen, book etc. So, the opportunity cost of seeing a movie refers to the value of next best alternative..

5 Figure02: Finding other stuff to do instead of watching movie. ❖ Water is necessary for life. Is the marginal benefit of a glass of water large or small? Marginal benefit - The marginal benefit refers to the additional satisfaction on utility that a person receiver from consuming one more unit of a good service. Water is a fundamental resource necessary for life and its utility in unquestionable. The marginal benefit of a glass of water can be large or small depending on the Situation. * For a well Hydrated person: If a person has already consumed enough water to meet their daily needs, the marginal benefit of consuming an additional glass of water is quite small. * For a dehydrated person: A person who has been out of the sun for hours without drinking any water. In this case, their body in dehydrated and they are experiencing a strong need for hydration. For this person the marginal benefit of one glass of water would be incredibly high..

6 Figure 03: Marginal water graph * For a person in a Water-source environment: In this situation where water is Scarce like in a drought on desert, a single glass of water may have a tremendous marginal benefit because the resource itself is highly valuable. So, the marginal benefit of a glass of water can be large on small. SmallWhen someone is well hydrated. Large when someone is dehydrated. In a water source environment or facing extreme conditions where water is necessary for survival. ❖ Why should policymakers think about incentives? MEANING OF POLICYMAKERS: Policymakers are the people or institutions responsible for formulating economic and welfare policies to achieve a desirable environment of growth and development and improve society as a whole. For example, a central bank is responsible for the monetary policies that affect a country’s inflation, employment, and growth rate.

7 Figure 04: Policymaker REASONS WHY POLICYMAKERS SHOULD CONSIDER INCENTIVES: Policymakers should think about the incentives to find how people respond to different policy actions, whether it is good or bad. Incentives provide reasons for people to act differently. It makes them adjust their actions to increase their gain. Thus, a policy that offers greater incentive will be more accepted and favored over others. For example, the traffic rules demand the use of seat belts; however, that doesn’t ensure its usage by people while driving. This can have an unintended consequence. But this behavior can be changed by providing appropriate incentives like avoiding legal actions and monetary fines by wearing seat belts. ❖ Why isn't trade among countries like a game with some winners and some losers? MEANING OF TRADE: Trade enables countries to take advantage of their resources in the best way possible. A country exports goods that it can produce at a relatively cheaper rate than its trading partners and imports goods that the other nations can produce at a cheaper rate than the domestic country. It minimizes the cost of production and produces a surplus. Figure 05: Trade.

8 REASON WHY TRADE BETWEEN COUNTRIES IS NOT A GAME IN WHICH ONE NATION WINS, AND THE OTHER LOSES: Different nations are endowed with different quantities of resources and different ways of production. Every nation cannot produce all goods efficiently. The scarcity of resources forces a country to choose the goods and services it wants to produce. The production of the good which has lower opportunity cost will be preferred over others. This leads to specialization. Specialization increases the welfare of the countries involved in the trade. Every country participating in the trade will try to win and will not continue trading if it doesn’t benefit the country at all. A country will engage in trading as long as the total surplus by trading is increasing. There can be winners and losers within the country, but the overall surplus should be increasing. For example, trading helps create job opportunities in countries with high unemployment rates and high skilled labor like in the IT sector. Even though it results in the loss of jobs in developed countries like the US, the producers are gaining. ❖ What does the “invisible hand” of the market place do? The invisible hand of the market refers to the idea that the market, through the self-interest of individuals and firms, can coordinate economic activity and allocate resources efficiently. This concept was first articulated by Adam Smith, the father of modern economics, in his work "The Wealth of Nations.".

9 Figure:06: Graph of Invisible hand The main idea is that the goal of producing goods is to offer the best quality at the lowest price for consumers. Society should support producers only if it helps consumers. When people work for their own benefit, they often end up helping society as a whole, even if that wasn’t their original goal. ❖ Explain the two main cause of market failure and give an example of each. Market Failure: Market failure refers to an imbalance in the distribution of goods and services in the economy. Change in the market structure is associated with market failure. Some of these changes that affect the free market include price limits, minimum wage requirements, monopoly power, and government regulations. The leading causes of market failure are externalities and market power. Externalities: A positive externality affects the third party positively, For example, Of Positive: the provision of public education helps the learners, but the whole society will also benefit from that public good. Figure 07: positive market Failure For example, of Negative: A negative externality affects the third party negatively; cigarette smoking will affect the health of a smoker and those around him. Market control exists where buyers or sellers bear the power to influence goods and services' market prices.

10 Figure 08: Negative Market Failure Market power: When one party controls a market too much, it can lead to unfair prices and market failure. Monopolies and oligopolies give sellers too much power, while monopsonies and oligopsony's give buyers too much power. This disrupts the balance of supply and demand. ❖ Why is productivity important? Meaning of productivity: Productivity measures the volume of output that can be produced by given inputs. It shows the efficiency of the inputs of production like labor and capital. Figure 09: Productivity Graph.

11 Technology advancement helps in improving productivity. Importance of productivity Productivity helps in assessing the input quality and standards. Higher productivity reduces the cost of production and enables the use the scarce resources more efficiently in the production methods. It allows countries to produce beyond their potential level determined by the given resources. It is the reason why countries invest in R&D activities. As innovations increase productivity and productivity increases income and output. For example, capital-intensive methods have greater productivity than labor-intensive methods and produce greater output using the same resources and time. ❖ What is inflation? And What does cause it? Meaning Of Inflation: Inflation refers to the increase in the price of goods and services. It is associated with a falling unemployment rate in the short run. As the demand and supply-side factors interact, any shortfall of supply or excessive demand can create inflation in the economy. Figure 10: Bar chart of Inflation REASONS FOR INFLATION: • Higher input prices like wages, cost of raw materials, and others reduce the supply of goods, resulting in cost-push inflation..

12 • Increased demand that the supply of goods cannot manage results in higher prices. This is called demand-pull inflation. • Devaluation pushes the value of the domestic currency downward. A greater amount of money is needed to purchase the same number of imports. • Government regulations like price flooring and taxes impact the market prices and result in higher inflation. Conclusion: In economic decision-making, understanding opportunity costs, such as the trade-off of spending time watching a movie instead of working, is crucial. Marginal benefits, like the enjoyment from additional water consumption, must be weighed against these costs. Policymakers use concepts like the invisible hand, which suggests individuals pursuing their own interests can benefit society, to guide decisions. However, market failures, such as when imbalances in power lead to inefficiencies, can disrupt this balance. Ensuring productivity and managing inflation are essential for a healthy economy, as they impact overall economic stability and growth..