New Era University.

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Assignment Nos. 2/ Ten Lesson in Economics and Thinking like an Economists

Submitted by: Ciara Castañeto Submitted to: Prof. AJ Orencia

Date Submitted
April 15, 2021

Section Schedule
Wednesday 4:00-5:30PM
1. Explain why the science of economics is concerned with the activity of households
and individuals at one end of the scale, and that of multinational corporations and
governments at the other.

The reason why the science of economics is concerned with the well-being
of all people, including those with jobs and those without jobs, as well as those with
high incomes and those with low incomes. Economics acknowledges that production
of useful goods and services can create problems of environmental pollution. It
explores the question of how investing in education helps to develop workers’ skills. It
looks at how to say when large corporations or trade unions are acting in the best
interests of society as a whole and when they are acting in the best interests of their
shareholders or members at the detriment of others. It investigates how government
expenditure, taxation, and legislation influence production and consumption
decisions. It investigates how people, corporations, states, and nations make resource
allocation decisions. Human activities are the subject of economics, which is focused
on the premise that humans behave rationally, achieving the highest degree of
advantage or usefulness. The analyses of labor and commerce are the foundations of
economics. Since there are so many different uses for human labor and so many
different approaches to procure capital, it is up to economists to figure out which
strategies provide the best returns.

2. It is a principle of economics that society faces trade-offs and one of these trade-
offs is between the goals of equity and efficiency. Explain the terms equity and
efficiency and discuss which of the two you think is the more important? Why might
government policies aimed at achieving the goal you think is the more important lead
to a reduction in the other goal?

When there is a conflict between maximizing economic efficiency and maximizing

society's equity (or fairness) in some way, it is called an equity-efficiency tradeoff. If
such a trade-off exists, economists or public policymakers may choose to forego some
economic efficiency in order to achieve a more just or equitable society. An equity-
efficiency tradeoff results when maximizing the efficiency of an economy leads to a
reduction in its equity—as in how equitably its wealth or income is distributed. Many
economic models have as a primary normative target the production of goods and
services that have the greatest value at the lowest cost. This can refer to an individual
customer or a company, but it most commonly refers to an economy's overall
performance in meeting the wants and needs of its citizens. Economists interpret and
seek to quantify economic utility in a variety of ways, but the most common methods
are all utilitarian in nature. In this way, an economy is efficient because it maximizes
the overall utility of its members. The definition of utility as a quantity that can be
maximized and averaged across all members of a society is a way for economics to
make normative objectives solvable, or at least approachable, using constructive,
statistical models. The field of economics most concerned with measuring and
optimizing social value is welfare economics.
When optimizing the market's economic productivity leads to less egalitarian
wealth distribution, the equity-production tradeoff happens. There is a tradeoff
between consumer productivity and market equity in welfare economics. Efficiency
indicates that society is making the most out of its limited resources. Equality ensures
that those rewards are spread equally among the members of society... There is a
way to properly reallocate finite capital (in this case, employees) in order to meet the
aim of increasing donations.
For a variety of reasons, no society should expect or desire complete income
equality at any given time. First, most workers earn low wages in their first few jobs,
then higher wages as they approach middle age, and finally lower wages after
retirement. Thus, a society with people of varying ages will have a certain amount of
income inequality. Second, people’s preferences and desires differ. Some are willing
to work long hours to have income for large houses, fast cars and computers, luxury
vacations, and the ability to support children and grandchildren. Because of these
reasons, a snapshot of inequality in a single year does not accurately reflect how
people's wages increase and fall over time. Wealth is the sum of all assets, including
money in bank accounts, financial investments, a pension fund, and the value of a
home. Income is a flow of money received on a monthly or annual basis; wealth is the
sum of all assets, including money in bank accounts, financial investments, a pension
fund, and the value of a home. Both loans, such as those owing on a home mortgage
and credit cards, must be subtracted before measuring wealth.

References:
Kenton, W. (n.d.). Equity-Efficiency Tradeoff Definition. Retrieved from
Investopedia
website:https://www.investopedia.com/terms/e/equityefficiencytradeoff.asp#:~:tex
t=An%20equity%2Defficiency%20tradeoff%20results
Env-Econ 101: Is efficiency versus equity a fair fight? (n.d.). Retrieved from
Environmental Economics website: https://www.env-econ.net/2009/04/envecon-
101-equity-and-efficiency.html
14.5 Government Policies to Reduce Income Inequality – Principles of
Economics. (2009). Retrieved from Opentextbc.ca website:
https://opentextbc.ca/principlesofeconomics/chapter/14-5-government-policies-
to-reduce-income-inequality/