Principles Of Economics
Principles of economics refer to the concepts and ideas commonly used in economics by economists for economic analysis. The principles of economics could also be used by people who wish to understand the financial world around them for the purpose of managing their resources such as incomes and savings better. A good understanding of the principles of economics could also make people to be better investors, consumers, producers, and economically informed voters during electioneering campaigns.
Generally, the principles of economics revolve around how individuals make rational economic decisions, how the economy works, and how individuals interact for economic gains. Some of the basic principles of economics are as listed below:Human Needs and Wants, Scarcity, Trade-offs, and Opportunity Costs: In economics, needs are regarded as goods and services that are essential for human survival and, hence, are required by all and sundry. Human’s basic needs include food, shelter, clothing, and health care. Our wants are those goods and services that are not essentially required for survival but we desire to have them to improve our standard of living. Examples of wants include entertainment, toys, games, glamorous trips, and jewelry.
Since we all chase unlimited wants with productive resources that are scarce or limited, the need to make choices become important which lead to individuals making trade-offs every day. As a rational economic choice is made, something else must have been given up and economists refer to what has been given up as opportunity cost to the economic decision maker.
Economic Benefits and Marginal Analysis: The principle of economics that explains why people incur costs is economic benefit. People spend their hard earned cash on goods and services because of the seeming benefits they derive from them. Though economic benefits can be in different forms yet the common forms are related to happiness and economists try to measure the level of happiness consumers derive from goods and services by using the term utility. Consumers decides to buy goods or services based on the concept of the margin of utility they think gives them marginal benefit over the marginal cost for the product.
Economic Incentives: Consumers see incentives as either positive or negative perception that changes the decision to buy or not to buy certain goods or services. In general, consumer purchase behaviour changes in very predictable ways when benefits or costs changes. For example, a rise in real interest rates provides incentives to consumers to consume less and save more. Likewise, people will normally buy more of stocks or bonds when prices fall and less when prices rise all things being equal.
Overall, economists believe that the economic decisions people make can have intended and untended effects with regards to the future. Economists believe that the future is the only thing that could be influenced by the choices that consumers make each day.