10 basic principles of the economy: cost-benefit, trade and the operation of the economy
INTRODUCTION
Analysis and understanding of the economic concept through the ten basic principles of the economy, tearing each case, to predetermine and carry out the different studies within a society, maintaining the margin of the basic concept of the economy.
The word economy comes from the Greek "oikonomos" that its meaning is: the one that manages a house. In short, the economy is a social science that is responsible for the study of how society manages scarce resources, since each society has different types of resources with which it can be maintained, we say that there are different distributions of joint actions of millions of homesand companies.
The economy contains several aspects, which are together for several fundamental ideas. And that is why economists use a deep analysis at the time of doing any study, such as the relationship between consumers and suppliers.
DEVELOPING
The economy is influenced by the behavior of individuals of a society, due to this, the four principles that regulate such behavior in decision making are presented.
1. People face dilemma.
In all circumstances, whether personal, academic, labor people face dilemma, which lead us to choice between two or more alternatives, and that we naturally have to give up one to obtain the other variable.
Society as a set of individuals or companies, also face disjunctive that could benefit a group and others to put them into economic disadvantages. We call this distributions of scarce resources both efficient and equitable for a common society.
Another commitment that society must face is between efficiency and equity. Efficiency means that the company obtains the maximum benefit of its scarce resources. Equity means that the company distributes these benefits equally among its members. In other words, consider the resources of the economy as a pizza to share. Efficiency would be the size of pizza and justice the way in which the different individuals are distributed.
two. The cost of one thing is what is renounced to get it.
Because people face commitments when making decisions, it is necessary to compare the costs and benefits of the different courses of action they can take. However, in many cases the cost of an action is not as obvious as it may seem at first sight. And when individuals face the dilemma, many variables must be taken into consideration, and one of them is the cost of opportunity that is what should be renounced to obtain a good or a service. While then we give up a resource to obtain another, the cost of obtaining it can be equal to or greater, but that depends on the needs of the individual or the reasonable way of spending their money.
3. Rational people think in marginal terms.
The managers of the study of the economy generally assume that individuals are rational. A person rationally, given the opportunities, consistently and deliberately does everything possible to achieve your objectives, either by several methods, but the common objective of this study is the behavior they adopt to do it.
A new concept that adds to the understanding for the development of the study of the economy is the marginal term means edge, therefore, marginal changes in different types of markets are small additional modifications to an existing action plan.
In everyday life a marginal change represents an extra variation to an idea that we had as, for example, when we invite us to a party the decision is not to go or not to go but rather it is to stay longer or return early to your home. For an economist a marginal change can have benefits, so as not to have profit losses.
4. Individuals respond to incentives.
An incentive is something that promotes people to act. Rational people respond to incentives because they make decisions that compare costs and benefits. You will see how incentives play a key role in the study of the economy. Incentives are fundamental to analyze the operation of markets, a higher market price encourages buyers to consume less and producers to produce more. As will be seen later, the influence of prices on the behavior of consumers and producers is of vital importance to determine how a market economy distributes scarce resources.
As shown by consumer incentives are an opportunity to buy goods and services at a negotiable price. However, for sellers or companies it represents a change of 360º, that is, if the goods they sell are at a low cost they would have greater demand, but their production cost is reduced since labor and other inputs maintain their price orstable salary, so they should reduce the work factor. The opposite of this is when the good or service has a high cost and good profits are obtained and could hire more personnel for production, obtaining benefits both workers and the company.
The next three principles will analyze the way people interact.
5. Commerce can improve the well -being around the world.
Commerce allows each country to specialize in what makes it better and thus obtain the best of other countries with imports and exports of goods. A collaboration between countries can help the economy of societies that make it up, leaving the market independently for the development of the country.
Competitiveness causes the market to take the reins in the economy of a society, and this is also reflected in families that rival the job search, however, not everything is pink since the individual who did not find a jobYou will have to find a way to generate income, however, that search awakens new ways of producing money that helps the continuous circulation of this.
6. Markets normally constitute a good mechanism to organize economic activity.
For the study of this principle we need to know the theoretical concept of a market economy that is that which assigns resources through the decentralized decisions of many companies and homes that interact in goods and services markets. But so that we have reached this definition, society had several changes throughout the history of humanity.
One of the events that gave an unexpected turn to the economic thought of that time was the fall of communism in the Soviet Union and east of Europe in the 1980s, private companies took the initiative to organize and develop market economies. This communism had control of the productivity of goods and services and also control for those who would distribute these goods, however, markets or private companies apart from generating work and economic income for society did not conclude that it was a correct pathFor the economic activity of a country.
The large part of the countries that once had a centralized economy have withpad this system and are trying to develop a market economy. As we had already mentioned in a market economy, the decisions that were previously made centralized are being replaced by the decisions of millions of companies and homes. Companies are responsible for deciding who to hire and what to manufacture. Households, meanwhile, decide where to work and what to buy with their income. Companies and homes interact in the market, where personal prices and interests guide their decisions.
7. The State can sometimes improve market results.
The State takes a very important role in the development of a progressive economy, since it is in the willingness to apply regulations to regulate the activities of the market economy, because the actions of some private companies benefit the large businessmen leaving inDisadvantage workers for a minimum wage and with other irregular activities that could lead to a market failure, that is, when resources are not efficiently assigned by the resources by themselves. One of the possible causes of this market failure is an externality, which is the effect that the actions of one person have on the well -being of another.
This is why the State is responsible for promoting equity and efficiency for economic activities that are handled within society, as long as the decisions of politicians have good intentions to improve the quality of life of their citizens throughregulations, tariffs, income taxes and social security.
The last three basic principles of the economy study the functioning of the economy as a whole.
8. The standard of living of a country depends on its ability to produce goods and services.
The standard of living of a country depends on the amount of productivity of goods and services that it can offer, since if a country does not have the necessary resources to produce either to supply its inhabitants and therefore they will have to look for new methods forThe economic development of the country.
The basic connection between productivity and standard of living is simple, but its implications are of great reach. If productivity is the main determinant of the standard of living, other explanations must be of secondary importance. The relationship between productivity and standard of living also has profound implications for public order. When we think about how a measure affects living standards, the key question is how this measure affects our ability to produce goods and services. Policies must increase productivity and ensure that workers are educated, have the tools to produce goods and services and have access to the best available technology.
9. Prices go up when the government prints too much money.
The more money the government prints, the value of this decreases proportionally, generating inflation nationwide since the prices of goods and services increase irrationally. An example of this type of event was in Germany in January 1921 when the newspaper price was 0.30 Marcos, German coin of that time, and in the month of November of the year 1922 that same newspaper cost 70.000.000 frames, and just as this good goods and services increased. It is important to mention that possible inflations are caused by the excessive increase in the amount of money in circulation.
10. Society faces a short -term dilemma between inflation and unemployment.
There are two effects that inflation can have one in the long term that we analyze it in the previous principle and the other in the short term that indicates several behaviors in the market that can benefit a society:
- An increase in the amount of money stimulates the curve of the demand for goods and services, generating expenses by consumers.
- When consumers generate too much demand, companies are forced to hire more workers to produce the amount of goods necessary to meet the needs of their customers.
- And due to these workers’ contracts, the number of unemployed decreases. Otherwise we activate the economic cycle, which is a balance of economic activity such as employment and production.
In short, we call this that society faces a dilemma between inflation and unemployment.
CONCLUSION
Based on the study that was conducted with the ten basic principles of the economy, it was demonstrated that it has several points of view that depends on the behavior of individuals, in the way they interact, and the operation in conjunction of an economy. And that for a situation there is a principle that encompasses these behaviors that allow the economist to understand the situation in which he is.
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