Getting to Know the Applied Economic Principles – Currently, more and more people are very worried about the problems that occur in the economic world. However, there are several principles that you can apply in economic activities. Economic principles can be applied in three economic activities, namely production, distribution and consumption. This principle aims to get maximum profit, prevent wasteful nature, and minimize the risk of loss.
Everyone Faces Exchange or Trade-Off
To get something you want, you have to sacrifice something else. This decision-making exposes humans to trade-offs in the form of time, money, goods, and others.
Costs Sacrificed to Get Something
If you want to achieve something, people have to sacrifice costs. This is called the opportunity cost or opportunity cost. Later, the opportunity will be lost and turned into a decision choice.
Thinking Rationally on Profit
To make decisions, humans must think rationally. Humans will think about and compare the advantages and disadvantages of the chosen opportunity. This comparison will help humans to make decisions.
Respond To Incentives
A person’s actions can change according to different types of environmental variables, such as benefits and changes in costs. For example, a person will be more active when he gets additional benefits from what he does.
Trading is Beneficial to All Parties
Trade between countries is generally done to benefit both parties. Each party will highlight their respective specialties. For example, countries A and B trade with each other. This trade aims to get quality goods from each country.
Market Becomes the Best Place for Economic Activity
The concept of a market economy will assist the centralized planning process. This is because the market is a place for interaction between households (consumers) and companies (producers) to bargain and reach the value of the price of an item.
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The Government Can Increase Production Factors
When the market fails, the government can intervene in the economy and provide a number of rules. Government intervention will support efficiency and equity to improve the market.
The country’s standard of living depends on the ability to produce goods and services
The standard of living of a country depends on the production capacity of a country. Generally, countries that can produce large quantities of goods and services have a high standard of living. Meanwhile, countries that produce goods and services in small quantities have a lower standard of living.
Prices Increase If Inflation Occurs
Inflation is a condition in which the prices of goods and services increase continuously. Inflation can occur if there is an excessive increase in the money supply. When inflation occurs, the value of money can go down and the price of goods can go up.
Society Faces Short-Term Trade-off Between Inflation and Unemployment
In the economic field, policies designed to reduce inflation can actually increase the unemployment rate. On the other hand, policies to reduce unemployment can lead to an increase in inflation.