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Fundamentals of Economics

Tuesday, October 27, 2009 Posted by TOWER ONE GROUP

If you asked all economists a simple question, they would never reach to a conclusion!

But there are some fundamentals on which virtually all economists will agree. These fundamentals are the Principles of Economics and below you will find five of these Principles:

1. You Can't Always Get what You Want!

Economics focuses on understanding how individuals, families, businesses, and governments make choices under conditions of scarcity. So how do these people choose? They just make the choices that they believe will make them happiest.

2. People Always Choose for a Reason!

We presume people select products to maximize their happiness and that businesses try to maximize their profits. There's no right or wrong choice here; whatever gives you more pleasure is the better choice for you.

Of course, a choice we think will make us happy or give us big profits might end up doing nothing of the sort.

3. People Respond to Incentives

Economists don't assume incentives alter everyone's behavior, only some people's conduct. Nor do economists assume that people refuse to act for altruistic reasons, only that economic incentives have a reliable and predictable impact.

4. Money Makes the Markets "Go Round"

Fundamentals of EconomicsMoney is like a common denominator that everyone has agreed to take in trade for their goods and services.

Money cuts way down on the transaction costs of trading, thereby making more trades possible and making people better off.

5. The World Is an Uncertain Place but We Have to Live Here Anyway!

People generally dislike risk ...

They hate it so much, usually, that they are willing to pay others great sums of money to reduce risk - that's the idea behind insurance!

Generally, anything that reduces uncertainty and risk helps people make better decisions, which in turn makes them happier.


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