What are the ten principles of economics?

Economics is the study of how scarce resources are managed. The Ten Principles of Economics summarize the central ideas of the various fields of study in economics, which are mainly reflected in three aspects:

(1) How People Make Decisions

Principle 1: People face trade-offs. In order to get one favorite thing, people usually have to give up another favorite thing. Making a decision requires an economic agent to make a trade-off between one goal and another.

Principle 2: Something costs what you give up to get it. Because people are faced with trade-offs, decisions are made by comparing the costs and benefits of alternative courses of action, also known as opportunity costs.

Principle 3: Rational people consider marginal quantities. People usually consider marginal quantities to make optimal decisions. A rational decision maker will take an action only if the marginal benefit of that action is greater than the marginal cost.

Principle 4: People respond to incentives. Since people make decisions by comparing costs and benefits, when costs or benefits change, people's actions change. Therefore, people respond to incentives.

(2) How people trade with each other

Principle 5: Trade can make everyone's situation better. Trade allows countries to specialize in activities in which they have a comparative advantage and to enjoy a variety of goods and services, thus making everyone better off.

Principle 6: Markets are often a good way to organize economic activity. Businesses and households trade with each other in the marketplace, where prices and personal interests guide their decisions, and the market economy achieves the result of maximizing social welfare in most cases.

Principle 7: Government can sometimes improve market outcomes. Markets need government to protect them, and when markets fail to allocate resources efficiently, government intervention in the economy can improve efficiency and promote fairness.

(3) How the Economy as a Whole Works

Principle VIII: A country's standard of living depends on its ability to produce goods and services. The rate of growth of production in a country determines the rate of growth of average income. People enjoy a higher standard of living in countries with high levels of productivity.

Principle 9: When the government issues too much money, prices rise. Inflation is a rise in the general level of prices in an economy, and the culprit in most inflation is an increase in the amount of money.

Principle 10: Society faces a short-term trade-off between inflation and unemployment. When the government increases the amount of money in the economy, it may cause inflation or it may reduce the level of unemployment in the short run. The trade-off between inflation and unemployment is only short-term, and policymakers can choose to influence the combination of inflation and unemployment experienced by the economy.