The Eight Guideposts to Economic Thinking
The Eight Guideposts to Economic Thinking
1. The Use of Scarce Resources is Costly; Trade-offs must Always Be Made
This is also known as “there is no such thing as free lunch.” Resources always have a price. Therefore, to gain resources needed means to lose others. In such a scenario, we enter to one of the important parts of economic thinking, decision-making. Therefore, it is vital that each trade-off must be done with caution every time, always keeping in mind the gain vs. loss, if the loss is worth it for the gain.
2. Individuals Choose Purposefully--- They Try to Get the Most from Their Limited Resources.
It’s not enough to choose alone, it must be done ‘purposefully’. Individuals make the most out of their resources. In a situation where a choice is to be made, one chooses the one which would best advance their personal needs. For example, if a person is to buy rice by kilo at a store nearby or to buy by sack from the supermarket, and according to calculation you will save more by buying by sack (including transportation costs to the supermarket), one who thinks economically will definitely choose to buy by sack.
3. Incentives Matter --- Choice Is Influenced in a Predictable Way by Changes in Incentives.
This is very obvious in the Filipino Market. I mean honestly, who wouldn’t go for a discount or a free item with a purchased one? Certainly, incentives chance how individuals choose among options. If one were heading to a designer clothes shop looking for a checkered top and passes by a store with a poster “SALE: 25-75% off”, would he resist walking in?
4. Individuals Make Decisions at the Margin
When making a decision between alternatives, it is a fact that people generally make decisions at the margin. They focus on the difference between the options, the marginal costs and marginal benefits. It is from these two that one sees which of the choices are more beneficial and worth spending on to the person.
5. Although Information Can Help Us Make Better Choices, Its Acquisition Is Costly.
When inside a supermarket, although more information among choices will benefit a lot it making a good choice, it isn’t always an option. Individuals don’t have the time to research the contents of each type of body soap to purchase, so they base on the best knowledge they have. But if you were to buy a car, you would definitely spend a lot of time knowing more of the options you have, because it will mean a great deal of money than a bar of soap, although gaining this knowledge will take more time and effort before acquiring the desired item.
6. Beware the Secondary Effects: Economics Actions Often Generate Indirect As Well As Direct Effects.
Every decision has its effects, and it is important to keep in mind not only the direct effects but as well as the secondary effects. When a student will decide to transfer to another school which requires a cheaper tuition, one must also check the transportation costs and addition to allowance. The school may offer a smaller tuition but it would be hard if in the end you realize that you cost more than you did originally, due to the additional costs in other needs that you will realize only later.
7. The Value of a Good or Service Is Subjective.
The value of a good or service differs among individuals. The more one needs or wants an item, the more value it has to him. A person like me who loves to eat food with mushrooms will be willing to pay more than me who wouldn’t dare touch the food even if you gave it to me for free.
8. The Test of a Theory Is Its Ability to Predict.
Economists come up with economic theories based on research, scientific study and knowledge of past events. These theories can only be proven useful if they are consistent in the real world with the flow of time. Inconsistency may render a theory invalid or lacking.
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