By To fulfil all righteousness, the 7 principles of economics are as follows:
- scarcity forces tradeoff
- cost verses benefits
- Thinking at the margin
- incentives matter
- markets coordinate trade
- trade makes people better off
- future consequences count
Now, is there anything above that you can’t infer the meaning; it is all common sense in theory. Yes, definitely, scarcity forces a tradeoff, we need to make choices and this reasoning resulted in the theory of opportunity costs. However, if you ask some Professor’s of Economics a simple question on opportunity cost, you will be surprised by how many make a mistake or get it wrong.
Another principle that defies common sense is thinking at the margin, when we pour hot water from the kettle into a cup for tea, we start fast and then slow down towards the end to make sure the addition water we pour, does not spill. We also wonder if you need the extra fries in a large than a medium order of fries while weighing the cost. We already think in margins, however you will have companies setting product prices arbitrarily instead of considering “marginal cost = marginal benefit” (they are also ignoring the cost versus benefits)
Therefore, these theories of economics, which give such power in all aspects of human activity, are crucial knowledge to be applied in every situation and not just the ones that seem obvious. Okay, I will admit that the application of some of these principles is not always straight-forward in every situation especially in regards to incentives and future consequences; we perform market and customer studies, run regressions, perform forecasts but certain erroneous assumptions or variables result in a scenario so far away from reality.
Nevertheless, we must continue to aspire for a better understanding of these principles because they are extensions from the first theory; since resources are scarce but wants are unlimited you need to optimise, make choices and express your free will.
p.s. as for me as a child of God, my resources are unlimited and my wants is zero!!
– God Bless
