Ten Principles of Microeconomics, illustrated by Gregory Mankiw in his book Principles of Microeconomics, imply a thoughtful analysis of the process of making a decision, human interaction, and economy work as a whole unified system. The author makes the emphasis that people make a decision via experiencing numerous tradeoffs: “Making decisions requires trading off one goal against another” (Mankiw, 1998). It is crucial to evaluate the costs and benefits of the results of a decision made. A person should be able to cost of a resource needed to complete the action. Making a decision is also a rational process, based on the essential human intellect or the respond on the incentives.
As for the human interaction, it is a true foundation of any economic deal. Interaction bases trade, which should not be perceived as a severe sport competition. Precisely interaction organizes markets, since it makes possible to maintain the communication, mutual understanding, and common profits. The principles of Microeconomics demonstrate that the economy works through the standards of living, which vary from one country to another, inflation, the value of a price, short-run tradeoff, and unemployment. The economy implies building a business cycle, which is generally equal to fluctuation in business practices and activity, including employment and production.
Ten Principles help to understand that economy is, in fact, the system of dealing with the scarcity of natural resources. The society of a particular country should decide what it will produce with its scarce resources (Rittenberg, 2008). Economic activity and business make clear that the humanity has limited natural resources, which cannot be eternally supplemented. It means that people cannot have an ability to produce the whole variety of goods they may want to have precisely because of natural scarcity. A sphere, which manages the use of resources, is economy. Interdependence is another side of economic activity, which breaks the territorial boundaries and becomes international deal. Interdependence is the main result of the scarcity, since it allows to get a deficient product from another country and vice versa. Interdependence is the basic reason of the trade as such. In order to know what kind of interdependence to apply for each country or market, it is important to use the model of supply and demand. This model is used for a thorough detailed analysis of the particular market’s needs. Graphically, the model depicts the demand curve that normally slopes downward (Mankiw, 1998). This curve demonstrates how the number of products depends on the price. The common law of the demand implies that the lower the prices are, the more quantity of products is demanded. In contrast, the supply curve slopes upward, because it demonstrates how the number of the supplied products depends on the price. The law of the supply implies that the higher prices a product has, the higher supplied quantity it gets. On the graph, which presents the supply curve and the demand curve together, the market’s equilibrium is a point “at which the supply and demand curves intersect” (Mankiw, 1998). Equilibrium defines a point when both price and quantity are in balance. It also shows a situation, in which every participant of the market is satisfied. The buyers have an ability to buy the whole range of goods they want to buy, and the sellers sell all the goods they want to sell. Price controls lead to the great changes in competitive market via implementation of the price ceiling, usually made by the government. Price controls lead to shortage of the product’s arises, large quantity of the potential buyers. Price falls influence negatively the outcomes and the demand, because price is a result of natural decision-making, which lies beyond the supply or demand. The impact of taxes control covers the problem of frequent unclearness in lawmakers’ decisions. It is not easy to distribute the burden of a tax appropriately between the buyers and the sellers. Tax incidence depends on the forces of supply and demand (Mankiw, 1998). Elasticity of the price affects the burden, which tends to fall on the less elastic market. The less elastic market cannot respond to the tax easily and change its products’ quantity.