The Seven Core Principles of Economics

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Economics is the social science that deals with the production, distribution, and consumption of goods and services and with the theory and management of economies or economic systems. All economists agree on one thing, the economy is large and it is unpredictable. However, throughout the years economists have developed some simple but widely applicable principles that are useful when trying to understand decisions that are made by everyday people to the workings of highly complex markets. There are Seven Core Principles of Economics. These principles are: Scarcity Principle, Cost-Benefit Principle, Principle of Unequal Costs, Principle of Comparative Advantage, Principle of Increasing Opportunity Cost, Equilibrium Principle, and…show more content…
The concept of cost-benefit sounds simple enough but to apply it you have to decide how to measure relative costs and benefits which can become tricky. Different people may feel differently about the value of different things. A classic example is whether a not you should walk downtown to save $100 on a $500 dollar guitar. The benefit here is saving $100. The cost being the time it takes for you to walk downtown and what else you could be doing in that time. If you feel that your time is worth $100 than you make the trip downtown. If you feel your time is not worth a $100 then you do not make the trip. However if you decide to make the trip then you should make that same trip to save $100 even if you are buying a $3,000 painting. It is important to ignore proportions and focus on absolute dollar amounts.

As long as the marginal benefit of an activity exceeds the marginal cost, people are better off doing more of it. But as soon as the marginal cost exceeds the marginal benefit, they suddenly become better off doing less of that specific activity. This can be used when deciding how many employees a company should have. To produce the profit-maximizing level of output and hire the optimal number of workers, and other resources, producers must compare the marginal benefits and marginal costs of producing a little more with the marginal benefits and marginal costs of producing a little less. You can decide how many workers to hire for a profit-maximizing car company by
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