Economics is a crucial part of our life. Virtually everything you do is connected to it in one way or the other. Thus, being familiar with the key principles of this vast subject can be quite helpful. Not only will it allow you to understand how the world works but it will also allow you to make educated decisions which are extremely important in virtually all parts of life. You can learn about all the key principles of economics with the help of qualified tutors e.g. the ones you can find in tuition centers like JC economics tuition in Singapore.
With this in mind, the following are the key principles of economics:
1. Microeconomics vs. Macroeconomics
Microeconomics is the study of small economics unites. It focusses on a close perspective to look at the economy. Macroeconomics, in contrast, provides a broad perspective as it is the study of the economy as a whole.
2. Comparative Advantage
If two economic actors cannot produce two goods at an equally good level, they can profit from the trade. The principle still applies even if one of the economic actors is good at producing both goods. This is because both of them can take advantage of specialization and trade to diminish their opportunity costs.
3. Opportunity Costs and Trade-offs
Everyone faces trade-offs in their life from time to time. You cannot always get everything you want because of the scarce resources. Therefore, you face opportunity costs. These costs describe the value of the next suitable alternative that you have to give up to get something.
4. Diminishing Marginal Utility
In most cases, the more you consume a certain service or good, the less the satisfaction becomes that you get from it. This helps to better foresee the quantities customers demand certain services or goods.
5. GDP and Economic Growth
To advance new technology, redistribute wealth, and satisfy the desire of people for the standard of living, economic growth is necessary. It is calculated by GDP which is the total value of all final services and goods produced within an economy.
6. The Law of Supply and Demand
The price of a service or good is determined by its demand and supply. Whenever supply is increased, the price falls and vice versa. Analogously, the price of service or good increases whenever the demand is increased.
Inflation and Deflation
Usually, a modest level of inflation is experienced by most economies. What this means is that there is an increase in the overall level of the price, which leads to a decrease in the value of money.
The government can adjust its tax and spending rates and hence influence the economy. Governments use the fiscal policy to smoothen the business cycles.
Interest and Interest Rates
If you take a loan from the bank, expect it to return with some interest. Interest is there to compensate the lender for bearing the risk of not getting the full amount back. How much you need to pay in order to get a loan is called the interest rate.
Economies usually experience irregular periods of contraction and expansion in economic activity. A business cycle begins with a boom phase, which eventually ends by a recession. The economy recovers once the trough is reached and then starts to expand again until the next peak is reached.
For more information, please visit other top economics websites like Tutor2U
Image credits: theeconomicstutor.com