May 25, 2024

1. Microeconomics and Macroeconomics

Macroeconomics considers the economy as a whole. In macroeconomics, total figures and data from the whole country are the focus. Therefore, macroeconomics offers a broad perspective. Microeconomics, on the other hand, studies small-scale economic units. It examines individuals and looks closely at their decision-making processes. Although these two disciplines focus on very different areas, they are intertwined with each other.

2. Opportunity Cost

People are in constant exchange. Due to the limited resources available, they have to make choices about some issues. That’s why they can’t get everything they want; Some things must be preferred over others. Opportunity cost, on the other hand, describes the value of other best alternatives that have been abandoned in this process.

3. Supply and Demand

The price of a good or service is determined by its supply-demand balance. In many cases, all other things being equal, an increase in demand causes an increase in price. Likewise, an increase in supply leads to a decrease in prices. In the long run, the market is expected to establish a balance in which supply and demand are equalized.

4. Comparative Advantage

If an actor in the market can provide a good or service with less opportunity cost than its competitors, this means that this actor has a comparative advantage. When it comes to comparative advantage, all market actors that produce a good or service more effectively than others can ensure that everyone benefits from these advantages by partnership and trading with each other.

5. Diminishing Marginal Utility

In many cases, people’s happiness in receiving a particular product or service decreases as the supply of that product increases. After a point, the marginal utility of a product may even fall to negative values, for example, it may be completely negative. Marginal utility is a concept that companies often use to set prices for their products.

6. Economic Growth and Gross Domestic Product

Economic growth is necessary to satisfy people’s desire to continually raise their standard of living, to redistribute income, and to discover new technologies. Economic growth is determined by the gross domestic product (GDP for short), which is the sum of all the products and services produced in an economy over a period of time .

7. Externalities

Externalities are the positive or negative consequences of the economic activities of an unrelated third party. They can increase or decrease at two extremes as production or expenditure. Externalities in many cases justify market crashes that can only be resolved by internalizing externalities through tight regulation.

8. Interest Rates

When a bank gives a loan to someone, it expects an interest payment in return. Thus, it aims to compensate for the risk of non-repayment and opportunity costs. Interest rates are the value that indicates how much interest a person or an institution has to pay to get a loan. That’s why interest rates play an important role in money trading.

9. Fiscal Policies

One way a government can influence and control a country’s economy is to regulate spending and tax rates. In the concept of fiscal policies, a government either stimulates the economy by increasing spending and reducing taxes, or slowing it down by reducing spending and increasing taxes. Fiscal policies can be used to smooth out economic fluctuations (booms and busts).

10. Inflation and Deflation

Many economies experience moderate inflation all the time. In short , inflation means: As prices increase, people’s purchasing power decreases. Deflation, on the other hand, is less common and is expressed as an increase in purchasing power as prices become cheaper.

11. Monetary Policies

Central banks or currency boards can influence the economy by regulating the supply of money. They do this by buying and selling government bonds or adjusting interest rates. An expansionary monetary policy provides economic activity and growth, while a contractionary monetary policy does the opposite.

12. Business Cycles

Economies regularly experience periods of decreasing and increasing economic activity. Business cycles begin with an economic boom and continue with a recession. After the low point of the recession is seen, the economy starts to expand again towards its peak and thus a new conjuncture wave begins.

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