9 principles of economy from Chapter One of Paul Heyne's EWT

Mircea crammed - December 29, 2013
9 principles of economy 

A few ideas underlying economic [principles]. "10 principles of economics" or "10 Big Ideas" or "10 key elements of the economy" are standard chapters in most books of introduction to economics. The following is my version based on Chapter 1 of The Economic Way of Thinking .

One. People act. People choose their targets (goals), and choose the means to achieve those goals (means). I suppose that one of your goals is to get a complete liberal education. Following the economy is one of the means chosen by you to achieve this goal. This implies that also other relationships for subsidiary-type means. Let's say one of your goals is to "pass the exam". Reading the manual, perform the tasks given, attendance at lectures and visiting professor are the means to achieve that objective.

Two. Every action has a cost. When you do something, you give up the opportunity to do another. For example, you have the beach almost infinite options at this point. You could eat, sleep, work or tell your friends, but you chose instead to read the text. The next best alternative is the cost that you incurred for reading this text. If you prepare for the first lesson and it takes five o'clock the next best alternative would be to work for $ 8 an hour, then prepare for the lesson cost you the opportunity to win $ 40 (we abbreviate this and say that "preparing for lesson "cost you $ 40). You will also hear people saying that "there is no free lunch", and really free things are not free. If you spend thirty minutes in line for a slice of pizza for free and the best alternative is working for $ 8 an hour, then that slice of pizza cost you the opportunity to win $ 4.

Three. People respond to incentives. Incentives motivate people to act. People will be more of a thing as the cost decreases, and will work less if the cost increases (law ​​of demand). Similarly, try to provide more of that which becomes remunerative and less of something that is becoming less remunerative (law ​​of supply). Prices are some of the most important stimulus to the economy. Price is the number of dollars to be exchanged for something ($ 2 for a cup of coffee, for example). Market prices arise from interactions between buyers and sellers.

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