Key Principles of Economics

The study of economics is vital as it provides an understanding of how the world works. It is the study of how people choose to use resources to improve their well-being. According to Samuelson (1948) “Economics is the "study of how societies use scarce resources to produce valuable commodities and distribute them among different people.” This paper will outline the 10 key principles of economics. These principles are grouped into the three 3 categories of “How people make decision”, “How people interact” and “How the economy works as a whole and will be presented in that order. The category “how people make decision” speaks about the principles people use to make decision. Under this category four (4) principles come in play. Principle 1, “People face Tradeoffs.” This principle states, “There is no such thing as a free lunch.” there are always trade-offs to get more of something we like; we have to give up something else that we like. For example, if you spend money on dinner and a movie, you won't be able to spend it on new clothes. Societies face a tradeoff between more consumer goods (low taxes) and more public goods (defense, social programs) (Transtutors, n.d). There is sometimes a tradeoff between the environment and jobs. Government also faces trade off between efficiency and equity. Efficiency is the property of society getting the most it can from its scarce resources. Equity on the other hand is the property of distributing economic prosperity fairly among the members of society. For example, tax dollars paid by wealthy and then distributed to those less fortunate may improve equity but lower the return to hard work and therefore reduce the level of output produced by our resources. This implies that the cost of this increased equity is a reduction in the efficient use of our resources. It is therefore best to recognize that tradeoff exists, as it helps one decide which decision to make. Since people faces tradeoff, people should make decision and

Cited: Mankiw, N. G. (n.d.). Pricple of Economics. Retrieved Feburary 9, 2012, from National and Kapodistrian University of Athens: http://old.phs.uoa.gr/~ahatzis/RDMST_H01.pdf Samuelson, A. P. (1948). Economics. New York: McGraw-Hill. Slembeck, T. (2006, Octobeer 1). Principles of Econmics. Retrieved Febraury 9, 2012, from Slembeck.ch: http://www.slembeck.ch/principles.html Transtutors (n.d). Principles of Economics. Retrieved February 9, 2012, from transtutors.com: http://www.transtutors.com/homework-help/micro- economics/principles/