Fundamental Economic Principles: Scarcity, Cost, and Choice
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Core Principles of Economic Thinking
- The Economic Way of Thinking: A set of basic concepts that helps one understand human choices. It stresses that incentives matter, meaning individuals respond in predictable ways to changes in personal costs and benefits.
- Primary Assumption: Economic analysis assumes that changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.
- Example of Incentives: If a college enforces a new policy where anyone caught cheating is immediately expelled, the basic postulate of economics suggests that fewer students will attempt to cheat.
- Secondary Effects: A good economist considers not only the immediate, apparent effects of a change but also the secondary effects—unintended