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Principles of economics - Essay Example

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Economics have ten principles, which are based on three areas which are: people’s way of decision-making, the process by which people interact, the way the whole economy works. The principles are as follows…
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Principles of economics
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According to the way people make decisions
People face trade-off
People face trade-off in the economy. A trade-off occurs where one has to give up something for something else. One can forego a resource so that they can spend it somewhere else (Mankiw, Gregory, 2014). For example, when a student is given upkeep money, they can decide to purchase extra study materials and reduce the amount of snacks they take daily.
The price of a good is what you pay to have it
To obtain a product, one must pay for it. The cost that one pays to obtain something and fore go the benefit of the other is called the opportunity cost. For example, one has to pay fees to spend time to gain knowledge of a particular skill. Therefore, it is important to consider the opportunity cost so as to make decision as to whether to undertake an action. In most cases, the chosen course of action has a lower opportunity cost. If the forgone choice has a lower opportunity cost, then there is no economic feasibility.
Rational people think at the margin
Economists take it that individuals are rational in decisions, and that they take the best options to achieve their goals, given certain opprotunities.Example, a company may decide to higher highly competent people who will produce a very high output within a shorttime.This will help maximize returns (Mankiw, Gregory, 2014).
Individuals react or incentives – People, being rational decision makers, would be sensitive to rewards and punishments (Mankiw, Gregory, 2014). Read More
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