What is the most fundamental principle of economics
Answers
Microeconomics vs. Macroeconomics
Macroeconomics is the study of the economy as a whole. It provides a broad perspective. Microeconomics on the other hand is the study of small economic units. It looks at the economy from a close perspective.
2) Trade-offs and Opportunity Costs
People constantly face trade-offs. They can never get everything they want due to scarce resources. Hence, they face opportunity costs, which describe the value of the next best alternative that has to be given up in order to get something.
3) Comparative Advantage
If two economic actors are not equally good at producing two goods, they can both profit from trade. Even if one of them is better at producing both goods. This is possible, because they can minimize their opportunity costs through specialization and trade.
4) Diminishing Marginal Utility
In most cases, the satisfaction an individual gets from consuming a certain good or service decreases as its supply increases. This allows to better predict the quantities consumers demand of specific goods or services.
5) The Law of Supply and Demand
The price of a good or service is determined by its supply and demand. Whenever supply increases, the price will fall (with all else being equal) and vice versa. Analogously, whenever demand increases, the price of a good or service will increase as well.