5 Basic Principles of Economics

Thinking Like an Economist

Tag: High School Economics

  • The Equilibrium Principle

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    The only relevant behaviours by members of a group of participants are those which are compatible with one another. Behaviours that are not compatible with the behaviours of others (e.g., with competitors and with the other side of the market) are not sustainable, regardless of the intentions of any one individual. Most people are familiar…

  • The Gains from Trade Principle

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    Most economic activities involving more than one person are not “zero-sum games”. They involve trading of some kind. Production without consumption is a waste and consumption without production is impossible. This perspective is not isolated to economics. Marketers encourage firms to adopt a “marketing orientation”, in which a firm seeks a profitable strategy which creates…

  • The Opportunity Cost Principle

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    All important decisions or choices involve a trade off. Thus, any explanation of why somebody chooses one thing must consider the alternative(s) that could have been chosen but were not. Often, opportunity cost in a market economy can often be summarized accurately by using relative prices: if the price of an apple is $2 and…

  • The Comparative Statics Principle

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    Comparative statics analysis is invoked in statements about the effects of differences or when linking cause and effect or when comparing a situation “before” with a situation “after”. Good comparative statics starts by clarifying which variables are “exogenous” (e.g., consumer tastes, production technology and so on) and which variables are “endogenous” (often price or quantity…