Instruction:
David Colander presents a journal known as eastern economic journal in 2016. A set of rules are important to organize the teaching of introductory economics. These rules offer an advantageous instructions and suggestions, which provide a platform for further discussions to unify. If a teacher follows all these efficient rules, then they make grading easier and students can remember all material related to the course. Many Economists argue that our way of teaching is not well and we are teaching the wrong directions as well. Every teacher should keep in mind that every principle is a tool not a rule.
Ten nuanced principles of economics:
Now a day, when the students try to learn principles they also learn nuance. Following are 10 standard principles of economics which are explained briefly.
The trade-off principle:
The trade-off principles consider as the backbone of the economics. To make trade-offs highly complicated, the nuance should be combined into the principles. The reason behind the complication of trade-offs is that economists want to increase our understanding about real world decision making and also want to work on economics behaviors. If teachers explain right information to the students then students will have better sense of how to apply economics in our daily life. Nuanced presentations consist of a caveat that prompts students that once in a while a win-win condition is possible.
The opportunity cost principle:
The rationality cost principle:
This principle is the base to the teaching of the economics. All the teachers teach to studiers that the entire rational decision maker takes action if the associated benefits of taking the action exceed the associated cost. Teachers do not teach students how to elaborate rationality in non-tautological way is much difficult, and they spoil the ability of decision making of students. For instance, when rationality principles is fix in marginal decision making. Real world decisions do not hold standard marginal formulas therefore, they are not marginal decisions. In real word rational choice is best and useful in decision making.
The incentive principle:
This principle is also considering as a tool not a rule. Many economics argue that people often respond to the incentive. Nuanced presentations of incentives would underline the price incentive. Price incentive pulls all the concentration of economic models; it is just one of a set of incentive. There are many other types of incentives as well. In sum, people respond to the real incentives which are fixed at institutions that the simple principle model do not capture.
The “trade is good” principle:
Trade and specialization are dominant factors of the economics. Trade is the source of corporation among people; trade that occurs in market is also a sample of cooperation among people. Trade is important for market because cooperation guide to the coordination. This principle emphasizes that with the help of corporation, it is possible to make a society better and effective. It also indicates that corporation inevitably needs difficult trade-offs. Trade is the form of cooperation and cooperation can make every one better off.
The “markets are good” principle:
Market is an institution where buyers and sellers come together to share their ideas. This principle can guide students to ignore the interconnection between market and government. We can say market and government are similar; they should not be judge as opposite. For the existence of best and effective market, government should support and secure the market and all the difficult decisions about distribution of property rights should be answered to the society as well. Government should make plans for the existence of efficient market, to solve problems related to market and to build an Eco structure conducive to market as well. Markets often provide a useful way for societies to coordinate actions.
The externality principle:
The externality principle declared that if markets are created by government then it would be in depended because they are not working under the cultural and political setting. As we know that market and government are similar. To correct and analyze market products, public policy plays important role in this favor. It affects the evaluation of market because top-down interventions into market products are not vital. Many arguments favor for and also against the government interventions. There are just not market failures or government failure but also the failure of market products.
The real principle:
The purpose behind the real principle encourages students to think about real goods and real services. It is based on truth and argues that if we produce more we will have more. The goods and services are measured by GDP.
The “money illusion” principle:
This principle illustrates that when the money illusion increases then prices are also increases. There are two serious and main problems with it. First, it does not elaborate current experience. Second, it forces students to see at just demand side and ignore the supply side.
The macroeconomics policy principle:
These principles always elaborate inflation, unemployment trade-off as a whole. In macro economy we would find supply and demand at the same level. Aggregate demand and supply forces are intertwined; many possible outcomes are possible.
I concur with most of the points raised by the author. The real world does not operate under the ideal conditions that are assumed in economic models. For instance, the assumption that externalities necessitate government provision of certain goods and services has been refuted through public goods games. Public goods games have consistently shown that people contribute voluntarily to common causes. Cadsby & Maynes (1999) were among the pioneers of studying voluntary contribution to public goods. They reveal that under certain condtion voluntary contribution can be achieved.
However, there are certain critical issues on the paper. Schotter (2006) argues that rational choice theory provides an efficient platform to study the behaviour of human beings. He points out that the principle should be judged by its ability to lay foundation for a set of predictions and making accurate predictions. Balakrishnan, et al., (2000) study the assumption that human consumers are rational as applied in economics and mathematical psychology. They use a Data Envelopment Analysis (DEA) to assess the efficiency of consumer choice. Their studies confirm the efficiency underpinning models that assume rationality. Besides, rationality principle has evolved to create bounded rationality that accounts for most of weaknesses of rationality that critics focus on. Rabin (2013) develops a model that incorporates limited rationality in economics. Therefore, introductory economics should update the principles that are being taught to students.
Conclusion:
All these principles are important and often used by economists when they are applying economics. Nuanced is not exist in our ways of teaching. When there is a need of nuance to apply on these principles then these principles separated from the principle themselves. Principles of economic course is the face of economics depends upon public; it create misunderstand economy. It does not occur always because john Stuart describes the principles of economics in well manner. Their principles are use as tools not as rules.
Bibliography
Balakrishnan, S., Nataraajan, R. & Desai, A., 2000. Consumer Rationality and Economic Efficiency: Is the Assumed Link Justified?. Marketing Management Journal, pp. 1-12.
Cadsby, C. & Maynes , E., 1999. Voluntary provision of threshold public goods with continuous contributions: experimental evidence. Journal of Public Economics, pp. 53-57.
Rabin, M., 2013. Incorporating Limited Rationality into Economics. Journal of Economic Literature, pp. 528-543.
Schotter, A., 2006. Strong and Wrong: The Use of Rational Choice Theory in Experimental Economics. Journal of Theoretical Politics, pp. 498-510.
