Key Principles of Economics - 1453 Words

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) â€Å"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 â€Å"How people make decision†, â€Å"How people interact† and â€Å"How the economy works as a whole and will be presented in that order. The category â€Å"how people make decision† speaks about the principles people use to make decision. Under this category four (4) principles come in play. Principle†¦show more content†¦The same point applies to trade between countries. If countries are relatively more efficient at producing services than certain manufactured goods, they benefit from h aving trading partners who supply those goods. (Transtutors, n.d) Firms decide whom to hire and what to make. Households decide which firms to work for and what to buy with their incomes. These firms and households interact in the marketplace, where prices and self-interest guide their decisions. Principle 6 states â€Å"Markets are usually a good way to organize economic activity.† A market economy is an economic system where prices are determined and resources are allocated through the decentralized decisions of many firms and households (Mankiw, n.d). In a market economy, the decisions about what goods and services to produce, how much to produce, and who gets to consume them are made by millions of firms and households. Firms and households, guided by self-interest, interact in the marketplace where prices and quantities are determined. (Transtutors, n.d). Principle 7 states, â€Å"Governments can sometimes improve market outcomes.† Government must first protect pr operty rights in order for markets to work. If markets fail to allocate resources effectively and efficiently it will result to a market failure. There are two types of market failure; externality and market power. Externality is the impact of one person’s actions on the well being ofShow MoreRelatedEssay about BUILDING A POSITIVE ENVIRONMENTAL LEGACY OF GAMESCOPE761 Words   |  4 Pagessake of the future generations and this can only be done through environmental sustainability and conservation. In episode five we learn all about building a positive environmental legacy that will benefit the future generations. In episode five the key topics that are discussed include: Defining environmental sustainability. Comparing and contrasting environmental conservation and preservation efforts Explaining how risk assessment could be applied in a given situation. 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