Esther Au

BABA2B

6/19/14

Principle # 7: Government Can Sometimes Improve Market Outcomes

Because of market failure, there are times that the government could improve the situation
through public policy. One of the causes of market failure is brought by monopolization.
Because of having a complete control of the entire supply of goods in a certain area, the market
fails to allocate resources efficiently. Examples of principle # 7 are government regulations
against monopolies and pollution.
Principle # 8: The Standard of Living Depends on a Countrys Production.
The entire principle is based on the idea that high productivity means a high standard of
living. It means that countries whose workers produce a large quantity also enjoy a high
standard of living. An example of this is by comparing Philippines to the United States of
America. Because of a high quality and quantity of goods and services being produced and
rendered in USA, the average income of USA from Philippines has a great difference. Thus, the
standards of living in both countries are also quite different.
Principle # 9 Prices Rise When the Government Prints Too Much Money.
One of the leading causes of inflation of prices is when the government generates large
quantities of money. Because of it, the value of money falls. Hence, there is an inflation of
prices in the economy requiring more of money to buy the goods and services. One example of
the Principle # 9 is when there is an overfull demand of a certain product. Because the demand

Esther Au

BABA2B

6/19/14

is more than what is being supplied, the suppliers tend to increase prices so as to lower down
the demand. As a result, the demand is maintained on a much steady level.
Principle # 10: Society Faces a Short-run Tradeoff Between Inflation and Unemployment.
If there is a lowering down of prices in the economy, it often causes a temporary rise in
unemployment. As what the tenth principle suggests, the society sometimes has to face
tradeoff between inflation of prices and the risk of unemployment. One example of it is when
there is a surge of prices, and then the employment rate also rises. Thus, the public has to
choose between high prices of products or more hiring of employees.