Ten Principles of Economics and the Data of Macroeconomics

Ten Principles of Economics and the Data of Macroeconomics

Myda Lugo

ECO/372

May 24, 2016

Dr. Geoffrey K. Mugalu

Ten Principles of Economics and the Data of Macroeconomics

Economics is the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society.  In the study of economics, coordination refers to how the three central problems facing any economy are solved.  The problems are what, and how much to produce, how to produce it, and for whom to produce it.

What is the difference?

Economic study ranges from the very small to the very large.  Microeconomics is the study of decisions that people and businesses make regarding the allocation of resources, and the price of goods and services.  It also focuses on supply and demand and other forces that determine the price levels seen in the economy.  Macroeconomics on the other hand, is the study of behavior of the economy as a whole, and not just specific companies, but the entire industries and economies.

Economists as Scientist and Policymakers

According to Albert Einstein “ The whole of science is nothing more than the refinement of everyday thinking”.  Economist try to address their subject with a scientist objectivity.  They devise theories, collect data, than analyze these data in an attempt to verify or refute their theories.  The policy goals that macroeconomics typically associate with includes economic growth, price stability, and full employment.  Policy makers can implement the tools of three major types of macroeconomics policy: monetary policy, fiscal policy, and structural policy.  So yes , economist do consider themselves as scientist and policymakers.

Principles used for Allocating Scarce Resources

There is a scarcity of almost everything that brings people happiness.  Remember when I said economics is the analysis of how society determines how it will distribute, or allocate, its scarce goods to a population and to a set of purposes that has an infinite desire for more.  Because economics deals with people and how they interact with one another, we study economics by observing the principles of decision making.  The four economics principles of individual decision making are:  1. People make trade-offs which means to get one thing that we like we have to give up something else that we like.  2. When people choose one thing they give up something else, that is people must always consider how to spend their own limited income or time because resources are limited to satisfy their unlimited needs and wants.  3. Rational people think at the margin which decisions in life are made in small incremental or detrimental adjustments to the existing plan of action.  Finally, people respond to incentives.  Since people make decisions by comparing cost or benefits, their behaviors may change when the cost or benefits change.