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10 Principles of Economics

PostPosted: 27 Sep 2021, 14:18
by AmandaAn1
Have you ever wondered why you should study economics?

- Economics helps us understand the world we live in
- It gives us the tools to make decisions
- It allows us to better understand the possibilities and limitations of economic policy

1- Individuals face trade-offs

To get something, we usually have to give up something else Decision making is a choice between two goals

Efficiency vs. fairness

- Efficiency means that society makes the best use of its limited resources.
- Fairness means that the benefits of those resources are distributed equally among members of society.
In some I have encountered ideas of coalescing efficiency and fairness into one formula.

2. The cost of a thing is what you have to give up in order to get it.

In order to make a decision, the costs and benefits of the various alternatives must be compared. - Study or work? - Study or walk the day before an exam? - Go to class or sleep? - The missed benefit is what you have to give up in order to get something.

3. Rational people think in marginal categories

- Minor changes are small incremental adjustments to an existing plan of action. - People make decisions by comparing costs and benefits at the margin.

4. Individuals respond to incentives.

- Marginal changes in costs or benefits motivate changes in individuals' behavior. After all, it matters how much it will cost us for example
- The decision to choose a particular alternative is determined by the fact that for that alternative the marginal benefit exceeds the marginal cost.

5. Trade can increase everyone's welfare.
- Individuals benefit from their ability to trade with others - Competition leads to profit through trade - Trade allows people to specialize in what they do best.

6. Markets are usually a good mechanism for organizing economic activity - A market economy is an economy that is not a market economy.

A market economy is an economy that allocates resources through decentralized decisions by many firms and households interacting in markets for goods and services. - Households decide what to buy and who will work to provide the resources for those purchases. - Firms decide who to hire and what to produce. - Households and firms consider prices when deciding what to buy and what to produce, thereby unknowingly taking into account the social benefits and costs of their actions. - As a result, prices guide agents' decisions to achieve outcomes that maximize the welfare of society as a whole.

7. The state can sometimes improve market outcomes

Market failures occur when the market fails to allocate resources efficiently. - When the market fails, the government can intervene to improve efficiency and fairness. Market failures can be caused by - externalities, the effect of an individual or firm's actions on the welfare of other agents. - Market power is the ability of an individual or firm to influence market prices.

8. The standard of living depends on the production of a country.

The standard of living can be measured in different ways: - By comparing per capita income. - By comparing the total market value of a country's output. - Almost all differences in living standards are due to differences in productivity in countries, you can find here more about that. - Productivity is the amount of goods and services produced by one worker in one hour.

9. Prices rise when the government prints too much money.

- Inflation is an increase in the overall price level of an economy. - One of the causes of inflation is an increase in the amount of money. - When the government creates a lot of money, the value of money goes down.

10. Society faces a short-term trade-off between inflation and unemployment.

The Phillips curve usually shows us the trade-off between inflation and unemployment.

And some helpful resources for you:

How To Pass Any Exam Without Studying

How to Pass Any Exam: 13 Useful Tips for Students

How to Pass Exams Successfully: Tips from Pragmatic German Students

How To Prepare For A School Test: Unbelievable Tips!