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Understanding the Cost of Something is What You Give Up to Get It

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We can make a distinction between economics and other social science. Many times the distinctions are made by the academics in the field. Some people make a distinction between economics and psychology; they say that economics is totally different than psychology. The reality is that economics has many principles that are just the same in all the other social sciences.


Principles of Economics: People make decisions based on principles of economics. People are rational human beings. If you took people who don't use barbells to train and they decide to buy a barbell, you can bet that they will make a rational decision. In the same way, if you took a person who is already trained in using barbells and asked them to make a decision regarding something with high stakes, you can bet that they will make a rational decision. This is why when economic models are created, behavioural economists study human behaviour to determine which choices are optimal based on the information that they gather from the consumer. It isn't hard to see that all behavioural economics is just a theory based on human behaviour.


Economic Theory: Economics uses the concept of efficiency and distribution to explain how people make rational decisions. This may sound like a strange way to describe economics, but behavioural economists have done just that. Their theories are models of markets where there are random buyers and sellers, rather than firms or organizations. The theory says that firms that give out better incentives to their workers will have more sales, and that individuals will be motivated to purchase goods by the level of incentive that they are offered. This sounds very similar to what we call market imperfections.


Microeconomics: Economics makes use of microeconomics, which is the study of micro-level details. For example, what determines the price level of a product in the market? This is something that would not normally be studied in a macroeconomic model. Microeconomists also look into the behaviour of organisations within a market. They study how small changes in the market can affect large aspects such as unemployment or inflation.


Economics as a Methodology: A lot of contemporary economic literature now makes use of micro-economic tools and methods. Microeconomics is used to examine micro-level aspects in an effort to understand macropratons. For example, it tries to determine what would happen if someone steals your car, without considering what effect it will have on the economy as a whole. The economic reasoning behind this kind of analysis is that people act rationally when they face the loss of a particular good, whereas they behave irrationally when they do not. Since the car is a resource that humans need, their loss upsets the ability to produce more cars. The way that Economics measures behavior based on this method is by looking at what the loss of an individual resource will do to the economy as a whole.


These are just ten principles that you may find useful. These are just a few of the methods that people face trade-offs in everyday life. Some of these methods are called "economistic reasoning" - which means that Economics offers the basis for how people make decisions in the real world. If you want to know more about the ten principles of Economics, feel free to read more articles like this and other related materials.

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