Having knowledge about economics is not seen as important as balancing budgets or learning how to drive an automobile. Yet, economics has a huge impact on every moment of our lives due to the fact that it is as study of choices and why and how we make them. Here are some basic concepts on economics that everyone should know:
Scarcity is the most common concept in economics and is more of a solid fact than any abstraction. Simply imagine that the world has limited means to meet unlimited wants so there will always be a choice to be made. An example is on how much wheat is grown every year. Some people want bread, others want cereal and some people want beer, etc. Only a little amount of one product can be made due to the scarcity of wheat.
Supply and Demand
The system of our market is driven by supply and demand. Let us put to example how people want more beer, this means the demand for beer is high. This demand means that you can charge more money for beer so that you can make more money by changing wheat into beer rather than grounding that wheat into flour. A lot of people will be starting to make beer and after a few production periods, there will be so much beer on the market that the prices will go down. Simultaneously, the price of flour has been increasing as the supply lessens, so more producers buy up wheat for the purpose of making flour. And the cycle goes on and on. This example encapsulates the wonderful balancing act that is supply and demand. The market is usually much more responsive in the real world. Supply and demand helps explain why last year’s top hit product is half the price the following year.
Costs and Benefit
The notion of cost and benefit surrounds a large area of economics that will have to do with rational expectations and choices. In all situations, people are more likely to choose the option that has the most benefit to them. Going back to our example of beers, the top breweries of the world will hire more workers to make more beer only if the price of beer and the volume of sales will justify the additional costs to the payroll. Identically, consumers will buy the best beer they can afford, not, perhaps the best tasting beers in the store.
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