Daily life is closely related to basic economic concepts that shape patterns of human behavior in managing resources.
Economics is a branch of science that analyzes human behavior in creating and meeting their daily needs.
Economic principles are used to regulate the course of the economic system. Economic principles refer to basic rules or concepts governing how individuals, firms, and societies allocate limited resources to meet unlimited needs.
To find out what economic principles and their characteristics are useful for life, check out the full review below!
10 Principles of Economics According to Prof. N. Gregory Mankiw
In a work titled Principles of Economics (1989), Nicholas Gregory Mankiw, commonly known as Gregory Mankiw, describes the 10 Principles of Economics.
In the book, the American macroeconomist and economics lecturer at Harvard University presents the following economic principles, namely:
1. Decisions Based on Trade-Offs
The importance of making sacrifices in decision-making or trade-offs is one aspect of the 10 principles of economics. Every individual is faced with the necessity to sacrifice something to gain something else.
As a simple example, the trade-off between rice and bread is a choice we are faced with. On the one hand, bread offers a variety of appetizing flavors, making it the top choice.
However, a sacrifice is to be made, which is a higher cost than buying a packet of rice.
In other words, to enjoy the pleasure of delicious bread, a sacrifice is required in the form of higher expenditure than choosing a packet of rice.
2. Opportunity Cost
Opportunity cost refers to the loss one is willing to accept when choosing option B at the expense of option A.
For example, Anton is faced with the alternative of joining an electronics company with a salary of Rp4,000,000 or an FMCG company with a salary of Rp5,000,000.
If Anton decides to work at the electronics company, he has to accept an opportunity cost of Rp1,000,000.
3. Marginity, Rational Thinking for Profit
Along with economic principles, every individual will make rational considerations to achieve a certain profit. Generally, people will make small adjustments to their activities to obtain maximum benefits.
A concrete example can be seen in an employee’s decision to extend his or her work contract. If the employee applies for a contract extension, he will get benefits through a promotion and a salary increase.
4. Trade Activities Benefit the Parties Involved
International trade generally occurs between countries that can produce certain specialized types of goods that other countries may not be able to produce.
Saudi Arabia and Indonesia are a concrete example of a mutually beneficial trade relationship. Indonesia requires fuel supplies to fulfill its domestic needs, while Saudi Arabia is a major fuel producer.
Therefore, it is not surprising that Indonesia has established a cooperation with Saudi Arabia, where Indonesia can fulfill its fuel needs. At the same time, Saudi Arabia gains profits from the sale of fuel.
5. Response to Incentives
Generally, individual behavior can be influenced by various environmental variables, including economic benefits and changes in economic costs. This can be seen in the public response to the government’s decision to reduce fuel subsidies.
The decision increased fuel prices for the public due to reduced subsidies, so many decided to reduce their personal vehicle usage in response to the change.
6. The Role of Government in the Production Process
In some situations, some markets fail to distribute resources efficiently, resulting in market failure.
Such market conditions must be addressed appropriately, and the government must implement effective regulations.
One approach is to support the production process in the market so that both sellers and buyers can benefit and economic activity can continue to run well.
An example of this is when disruptions in distribution led to rice shortages in several traditional markets ahead of Lebaran celebrations.
The government can intervene and investigate the entire process, from production to distribution to retailers in traditional markets.
Furthermore, the government will analyze the investment results to decide to stabilize the rice supply.
7. Market as a Center of Economic Activity
A market is a place where communication between consumers and producers takes place. In every market, there is bargaining over the value of goods, which ultimately positively impacts a country’s economy.
As a simple example, when a housewife buys cooking needs at the market, she will bargain with the seller to get a price that is considered more reasonable.
8. A Country’s Standard of Living Depends on Production
Then, the 10 economic principles also underline that people’s living standard in a country is strongly related to production capacity.
In other words, a country’s living standard can be considered high when goods are produced in large quantities.
For example, Japan has achieved the status of one of the developed countries despite having a smaller area and population than Indonesia.
9. Trade-off between Unemployment and Inflation
In addition, the 10 economic principles also show that an increase in inflation tends to decrease the unemployment rate.
This concept is consistent with the Phillips Curve, a specialized economic model that illustrates the opposite relationship between the inflation rate and the amount of unemployment. However, this phenomenon generally only occurs for a short period of time.
10. Inflation Occurs due to Too Much Money in Circulation
The next 10 economic principles address the issue of inflation. As per economic principles, inflation occurs when the amount of money in circulation increases excessively, which can result in a decrease in the currency’s value.
For example, if the amount of money in circulation in a country is too large, the currency’s value may decrease, increasing product prices.
Characteristics of Economic Principles
Economic principles aim to achieve the greatest possible profit while minimizing the risk of loss that may arise from certain mistakes.
Economic principles also aim to avoid excessive consumption and only use the owned capabilities. Here are some characteristics of economic principles that need to be known, among others:
1. Act Rationally
Always use common sense without being influenced by emotions and impulses before carrying out economic activities or actions.
2. Act Economically
Conduct economic activities with measured planning and through careful calculation. Economic behavior allows a person to meet the various needs of his life and avoid the tendency to be wasteful or wasteful.
3. Act Frugally
Buying goods or services according to actual needs.
4. Make a Priority Scale
Fulfill all needs by arranging the order based on their level of importance, starting from the less urgent to the most urgent.
5. Cost and Benefit
Always consider the costs incurred and the benefits obtained from any economic action or activity undertaken.
Conclusion
In conclusion, the 10 economic principles presented by Nicholas Gregory Mankiw provide in-depth knowledge of the basic principles that guide economic behavior.
By understanding and applying these principles, we will gain a strong foundation in economic decision-making and understand the important role of government in maintaining economic stability.
Trading with Over-the-Counter (OTC) Feature on INDODAX
Well, now you understand what economic principles and their characteristics are useful for life.
Furthermore, if you want to use personalized services to trade crypto assets in large enough quantities that cannot be processed through the order book, you can visit the OTC trading page on INDODAX.
OTC service prices will always follow market price movements because transactions occur on the spot market. It is important to note that even if the purchase amount increases, it does not guarantee the price will get cheaper.
The service emphasizes the convenience of transactions for members, where a dedicated team will guide through all procedures, ensure security, and maintain user privacy.
As a disclaimer, it is important to note that security and privacy remain the user’s responsibility.
OTC trading involves certain risks, and the decision to use this service is entirely in the hands of the user, so it is important to do research and understand the risks involved before starting.
Start trading with OTC on INDODAX right now!
