Study the 6 principles of economics for your Economics exam. This guide covers trade-offs, opportunity cost, marginal thinking, incentives, trade, and market efficiency.
Q: People economize
Answer: People choose the best alternative which seems best to them because it involves the least cost and greatest benefit.
Q: All choices involve cost
Answer: Cost is the second best choice people give up when they make their best choice
Q: People respond to incentives
Answer: Incentives are actions or rewards that encourage people to act. When incentives change, people’s behavior changes in predictable ways
Q: Economics systems influence individual choices and incentives
Answer: How people cooperate is governed by written and unwritten rules. As rules change, incentives change and behavior changes
Q: Voluntary trade creates wealth
Answer: People can produce more in less time by concentrating on what they do best. The surplus goods or services they produce can be traded to obtain other valuable goods or services.
Q: The consequences of choices lie in the future
Answer: The important costs and benefits in economic decision making are those which will appear in the future. Economics stresses making decisions about the future because it is only the future that we can influence. We cannot influence things that have happened in the past.