Summary Book How To Understand The Basic Principles Of Economics

This book tells the story of a young man who has just finished his master's degree in business administration and is preparing to work as a manager in the company of his father –James Smith-; But one day talking to him, he tells him that he does not have the slightest idea of ​​what economics means, because they taught him a lot of mathematics and what a manager needs to understand is the basic meaning of this, because you cannot be a good manager without being a good planner and you cannot be a good planner if you do not understand how the economy will affect a business. business.

After telling her this, he asks her to go to college to see an old graduate school professor of his. -Mr. Marshall- to explain everything a manager should know about economics, because that will not take much away weather.

Young Smith did what his father asked him to do and this is how he begins the whole explanation of economics:

There are three areas of the economy that every manager must understand: macro, micro and international, you cannot understand one of them if you do not understand the others.

MACROECONOMY

As its name says, it focuses on the macro level, that is, the general economy, so that absolutely no one is saved from not being affected by the changes it undergoes.

The main themes in this area are inflation and unemployment, the latter being extremely common in the society that we currently live in, which brings many problems, because the economy does not work at its level maximum.

Policies designed to reduce unemployment generally lead to inflation and vice versa, so the point where they can harmonize and achieve a balance that must remain stable.

The government and the Federal Reserve Bank are the ones that control the economy and in most of the Sometimes their interests do not coincide, because each one tries to see for his own benefit and not for his country. Politicians want the economy to function as close to full employment as possible, but the Federal Reserve Bank often doesn't care. It is convenient because if inflation occurs, the high interest rates affect it a lot, since they discourage investment and benefit the debtors not the banks. Interest rates influence almost every aspect of a country's economy.

Macroeconomics is based on a cycle consisting of government spending, investment spending, taxes and savings, these four elements are the ones that directly influence inflation and unemployment; When you want to increase economic activity, government spending is increased and taxes are reduced, and when you want to decrease, the opposite is done. When the economy reaches full employment, savings and taxes must be kept equal to government expenditures and investment, in order to avoid either of the two situations.

INTERNATIONAL ECONOMY

Free trade between countries benefits everyone.

The theory of comparative advantage shows that everyone wins when countries specialize in what they can produce more efficiently and exchange these products for those they cannot produce with efficiency.

Exports generate employment as do consumption, investment, and government spending. When more is exported than imported, other countries have to have dollars to pay (international currency - Bretton Woods Agreement)

Interest rates are decisive in everything that has to do with the economy and internationally this is even more true.

The international monetary system is facing one of its worst crises and company managers who do do business internationally, they must be aware of all this and it can only be done if it is understands. Currently, there are close to eight hundred billion dollars in outstanding loans to the countries of the Third World, and practically none of them are paying capital, many even cannot pay the interest.

OPINION

Reading this book seemed extremely interesting to me, as it explains in a very brief, exemplified and entertaining way what is the economy and all its basic concepts, as well as its areas, which are: macro, micro and international. These complement each other, because to understand them properly we must relate and understand them with everything they contain.

The area that concerns us in this course is microeconomics, where the objective of companies is to produce profits, and the job of managers is to produce profits for the company. Its objective is to maximize profits, which are equal to total revenues minus total costs.

To manipulate prices in order to increase profits, you must know something about the demand for the product, how price affects product sales, and the price elasticity of demand for the product. product.

The factors that play the most important role in defining the type of demand are the percentage of income a consumer spends on that good, the number of substitutes for that good, and time.

There are different types of costs: fixed (they do not change with production), variable (if they change), average and marginal.

The demand situations that the company can face are: perfectly competitive market, monopolistic market, monopolistically competitive market and oligopoly.

Managers need to know about the structure of the industry they are operating in if they want to make smart decisions.
the leadership policy is practiced, whereby the recognized price leader usually announces a price increases and soon after all other companies in the industry will announce increases of prices.

Managers need to know about the structure of the industry they are operating in if they want to make smart decisions.

BIBLIOGRAPHY

Charles Pool John, et. to the., How to Understand the Basics of Economics, ed. Norma, Colombia, 1989.