Category: Basic Principles

The supply curve shows how much of a good or service sellers are willing to sell at any given price. However, it is not constant over time. Whenever a change in supply occurs, the supply curve shifts left or right (similar to shifts in the demand curve). An increase in […]

Four types of economic systems characterize most economies around the world: traditional economies, command economies, market economies, and mixed economies. All of them rely on a different set of assumptions, regulations, and conditions. And, of course, all of these economic systems have their strengths and weaknesses. We will look at […]

There are two fundamentally different approaches to teaching economics: positive and normative economics. This is important to know, depending on the approach chosen, the same topic may be presented in an entirely different way. Thus, being aware of this will help you gain a more comprehensive knowledge on economic issues. In […]

In economics we often talk about goods and services. They are the most basic products of an economy. Goods are defined as tangible consumable items (e.g. ice cream) while services describe tasks that are performed by individuals for the benefit of others (e.g. teaching). Seems pretty easy, right? Well, if we just look at examples such as […]

The Basic Circular Flow of Income Model is one of the most fundamental models in economics. It is also often referred to as the Two Sector Model, because it analyzes the relationship between two economic sectors; households and firms. More specifically, the model illustrates basic exchange processes between the two sectors, namely the flow […]

A large part of economics has to do with numbers. In fact, many economic issues can be solved if you have the right formula and enough data. Fortunately, there is no shortage of data these days. Dozens of economic reports and indicators are published every week by government agencies and private organizations. […]

The concept of marginal utility is one of the most fundamental principles of economics. It describes the additional satisfaction an individual gets from consuming one more unit of a good or service. This information is critical for predicting and explaining consumption decisions. Although actual utility cannot be measured in hard […]

Models are a very important tool when it comes to understanding economic principles. Yet they are often subject to criticism, mostly because many of them are said to be simplistic and far away from reality. Because of that the importance of economic models is often underestimated. To be fair, the critics […]

The study of economics can roughly be divided into two branches: Macro- and Microeconomics. For the sake of completeness, there are certain other branches as well, but differentiating between those two will be good enough for us (for now). The two disciplines look at the economy from different perspectives. While […]