Posted by Anjali Kaur on Jul 23, 2020

7 Things You Should Know About Economics

Economics affects all parts of our daily lives. Economics is related to the economic i.e., money problem which arises because our (Human) wants are unlimited and the resources to fulfill those wants are limited on earth. So, to fulfill our needs, we always choose by sacrificing something else. Not everyone gets to master in economics. But that doesn’t mean you can’t understand economics. I will be giving you the most basic concepts that you must know about economics. Let’s start with the 7 things you should know about economics.

The key terms used frequently

There are some common terms used in economics, such as:

  • Good – It means any commodity.
  • Consumer- A person who consumes the good for the satisfaction of their wants.
  • Factors of production – It includes land, labor, capital, and entrepreneur. These factors help in producing any good or service.

Read Introduction to Economics for detail.

The Concept of Utility

Another important concept is related to utility. It means the use-value or the want satisfying power of any commodity. In economics, we use the concept utility to determine the consumer satisfaction level of a consumer from the consumption of any commodity. The word ‘cardinal’ is often used, which means every commodity that we consume can be measured by assigning a number to it. Read the cardinal utility approach for detail.

The law of diminishing marginal utility

This law simply says that if a consumer keeps on consuming the same commodity again and again, without any time gap, the satisfaction derived from each successive unit will keep on falling. Read the law of diminishing marginal utility for detail.

Opportunity cost

This term signifies that every time we make a decision and choose something, then we have to forgo the next best option. The cost of the second-best alternative forgone is the opportunity cost. Read more about the concept of opportunity cost.

Microeconomics versus Macroeconomics

These are the main branches of economics. Microeconomics deals with the individual units, like the demand of a single consumer, or a single household. Macroeconomics is a wider term, it comprises of economy-level problems, like national income, aggregate demand, unemployment level, inflation level, etc. Read more about microeconomics versus macroeconomics.

The budget line

The budget line mainly describes the consumer income level. It shows that with a given income of a consumer and the prices of the commodities. How much will the consumer spend on two different commodities, to run smoothly within the given income level? Read more about the budget line.

Demand

This is the most sought after and popular topic in economics. It refers to how the consumer demand changes, with the changes in the prices of the commodity, keeping other factors constant. Generally, with the increase in prices of any commodity, its demand falls, and vice versa. Read more about the concept of demand.

These are the 7 most basic things everyone should know about economics. I hope it was helpful.

Photo by Miguel Á. Padriñán from Pexels

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