It is often said that people face trade offs while making economic or business decisions in theirs day to day activities. But, it is equally important to find answer to “why do people face trade offs”
We know that basic principles of economics act as guiding path to study subject matter of the most vital discipline. Once if you master the basic principles of economics, it would be much easier to go through the domain of knowledge of economics.
List of basic principles of economics
1.People face trade offs.
2.The cost of something is what you give up to get it
3.Rational people think at the margin
4.People responds to incentives
5.Trade can make everyone better off
6.Markets are usually a good way to organize economic activity/The idea of invisible hand
7.Government improves market outcomes
8.Country’s standard of living depends on it’s ability to produce
9.Prices rise when the government prints too much money.
10. Society faces a short run trade offs between inflation and unemployment.
Here onwards, I’m going to explain the basic principles of economics one by one with suitable examples.
First Basic Principle of economics “People face trade-offs”
Nothing is infinite on this planet. Hence, scarcity, choices, and bargaining are permanent in our day-to-day economic activities.
Practically, no one can produce everything he needs, nor does he consume what he aspires. This is the reason why people face trade-offs while making economic choices.
Understanding First principle of economics — people face trade-offs.
Usually, we hardly put a limit on our infinite desires. But, it is almost not possible to get realised with limited resources.
Sometimes, a situation arises when people have to make choices among things all you like. Financially, no one can realise all the desires he or she has within given resources.
Therefore, one has to choose one by sacrificing other you like. This is we say trading off one for one for other. It is essential to manage your scarce resources.
Meaning and examples of trade-offs in society
Julian and Jack are brother and sister. One day, father tells them a plan regarding holiday trip before school starts. Father puts a condition for them. Earlier, father promised to buy bike and scooty for both. But, there, they have decided to make a small change in plan.
According to father’s plan, if they want to come on holiday trip, they are going to loose theirs bike and scooty. But, if they want to remain at home with grand parents, they will get what was promised earlier.
Actually, both love picnic. And holiday trip is nothing less than a dream come true. At the same time, if they go for trip, they have to travel by bus for school entire year. What would they do? They have two options — trip or bike? Will they become successful breaking trade offs they facing.
Scarcity of resources force people to make judicious decisions
Exactly same thing happens In our daily lives, there is no dearth of trade-offs. It is too difficult to find out exception. Here, I’m going to present an example of a common trade-offs between “Profit and environment”.
Both higher standards of living and pollution free environment are the most desired things that everyone aspire for. However, better profit without negative environmental externalities seems unimaginable.
Likely, if you go for better rewards in terms of profit, it is too difficult for any economic activities to achieve target without compromising health of environment.
Surely, you want both but can’t possible. So, if you want profit, development, and higher standards of living, you have to sacrifice the quality of environment probably you most like.
While choosing options, one always think about the comparative advantage the things have. It means that if a given thing seems better promising than other, it is better to go for that.
Concluding statement on people face trade-offs
Trade-offs are the mental state of psychological dilemma regarding economic decisions. You may have many choices but scarcity of resources.
So, it is indispensable to make right choice and judicious decisions. Because, you are going to sacrifice one for other. Hence, careful study is essential before take final choice. Otherwise, missed opportunity might not let you to be satisfied anymore.
This is what we are aspiring to — learning to make correct choices with lesser opportunity costs but within the available scarce resources.
Solved questions on People face trade offs
following are some useful questions given to provide our users great insight regarding basic principle of economics people face trade offs.
Q. 1 What are the basic principles of economics? Why are they so important?
Ans: Basic principles of economics are general rules that govern economic behavior of an individual while making economic decisions. In our day to life these principles help us to make sound economic decisions by which we can make balance between limitless desires and limited resources.
Q. 2 What is first principle of economics? What Does it explain?
Ans: People face trade offs is the first principle of economics. It means one has to choose one by sacrificing many he or she likes. It is often situation in everyone’s day to day economic life. Everyone cannot realise his or her desires in short of limited resources. So, he or she has to compromise his or her desires by sacrificing other liked choices. Thus is the trade off.
Q. 3 What are some examples of trade offs in our daily life?
Ans: To make choice out of other desired things creats a dilemma. If a child has to choose either toy or ice cream, a girl has to choose either skirt or sandles, if students have to choose picnic or bike. These are some situations which create dilemma to make better decision. These are some simple examples of trade offs.
Q. 4 What is importance of economic principle people face trade offs.
Ans: This principle enlightens about the psychological condition of dilemma. It also helps to make choice considering limited resources with minimum opportunity cost. In short it makes balance between unlimited desires and limited resources.
Natural resources and conservation
Principles of money supply and inflation
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Alternative coordinating conjunctions