Question

. Describe 10 principles of economics. Explain what questions economics addresses as well as the principles of how economy works. For example, national income, production etc.

Answer 1

The basic questions which economics addresses to are, what are the principles related to people making decisions in the economy?, what are the principles related to how the people interact to each other? and most importantly, what are the principle for working of the economy as a whole?

Principle of demand is related with the inverse relationship between price and quantity demanded of a commodity in a specific period of time. Whereas, the principle of supply is related with the direct relationship between price and quantity supplied of the commodity. The principle of production is related with how much is the cost of factors of production and its effect on the production level of the commodity.

Principle of cost is related with the cost of production which is less than the production and if the cost of production is more then the production will less. Principle of revenue is related with the seller selling more goods by reducing the price of the commodity and the ultimate aim and goal of the seller is to increase the revenue. The principle of price determination is related with how the price is determined with the help of demand and supply forces.

The principle of producer's equilibrium is related with the situation of producer getting maximum profit out of his limited resources and yes no tendency to make any changes in his existing production. Principle of consumer's equilibrium is related to the situation of consumer getting maximum satisfaction out of his limited income where he has no tendency to make any changes in his existing expenditure.

The principle of full employment and underemployment is related to the situation of aggregate demand which is equal to aggregate supply. In economy there are three problems which is called as Central problems, i.e., what to produce, how to produce and for whom to produce. What to produce is basically the problem of what type of goods to be produced and in what quantity, how to produce is basically the problem of what type of technique is to be used in producing the goods and services and for whom to produce is basically a problem of who is the final consumer of produce goods and services and how the factor income is distributed among the factors.