Answered: principles that describe how the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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principles that describe how the economy as a whole works

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Step 1

Economy

Economy is described as the area in which various amounts of consumption, production, and trade take place and that helps us in knowing how the scarce resources are allocated efficiently. A classic economy is an economy where unemployment and inflation levels are balanced. It is applicable to everyone starting from individuals to firms and governments. There are three basic principles that control an economy which are scarcity, efficiency, and sovereignty.

The three principles that describe how the economy as a whole works are:

The standard of living of a country depends on its ability to produce different goods and services
Prices of commodities and services rise when the government prints too much money in an economy
Every society goes through and faces a trade off in the short run between inflation and unemployment

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