Tuesday, January 24, 2012

The 6 Core Economic Principles

1. People Choose: We always want more than we can get and productive resources
(human, natural, capital) are always limited. Therefore, because of this major
economic problem of scarcity, we usually choose the alternative that provides the
most benefits with the least cost.

2. All Choices Involve Costs: The opportunity cost is the next best alternative you
give up when you make a choice. When we choose one thing, we refuse something
else at the same time.

3. People Respond to Incentives in Predictable Ways: Incentives are actions,
awards, or rewards that determine the choices people make. Incentives can be
positive or negative. When incentives change, people change their behaviors in
predictable ways.

4. Economic Systems Influence Individual Choices and Incentives: People
cooperate and govern their actions through both written and unwritten rules that
determine methods of allocating scarce resources. These rules determine what is
produced, how it is produced, and for whom it is produced. As the rules change, so
do individual choices, incentives, and behavior.

5. Voluntary Trade Creates Wealth: People specialize in the production of certain
goods and services because they expect to gain from it. People trade what they
produce with other people when they think they can gain something from the
exchange. Some benefits of voluntary trade include higher standards of living and
broader choices of goods and services.

6. The Consequences of Choices Lie in the Future: Economists believe that the
cost and benefits of decision making appear in the future, since it is only the future
that we can influence. Sometimes our choices can lead to unintended