Introduction:
The study of economics refers to the management of scarce resources. Due to the
limited resources, people need to make decisions accordingly and interact with each
other in the market. The economy, as a whole will naturally act according to the
changes in policies, which derives to the ten principles of economy that applies to
both individual components of economy and the economy as a whole.
Principle 1: Trade-offs among individuals and society
It is spontaneous of people to face trade-offs in daily life. Every time one needs to
make a decision on two or more options, one either try to make oneself content, or
choose the best by comparing among the available options. Take a microeconomic
example, if one has one extra class for self-study, one needs to choose whether review
Physics or all other subjects. Choosing one means losing the knowledge gained from
the other option. When it comes to the trade-offs that individuals face, there is one
particular trade-off between efficiency and equality. Take a microeconomic example,
if one has one extra class for self-study, one will choose to review Physics from all
subjects because he will have a test in the afternoon. In this case, one chooses the best
option according to his demand.
Principle 2: The cost of something is what you give up to get it
As it was mentioned above, people make decisions by comparing among the available
options, to be more specific, “comparing the costs and benefits of alternative courses
of action” (Mankiw et al,. pg 5). The opportunity cost of a choice is the second-best
alternative that we give up. People always try to choose the option with the minimum
opportunity cost while making decisions. For example, one may refuse to hang out
with his friends because he compares his opportunity cost in two scenarios. First one
is hanging out on Saturday, and the second one is saving the time to review for the
incoming test and money for other purposes. If he gives up his studying time, he
would need to work on his homework late at night and maybe his next test score will
not be satisfying. However, if he did not go with his friends, he could not only save
