Economics: The Two Key Principles Of Economics

Two Key Principles of Economics Learning the five key principles of economics provides an understanding of economic analysis. There are many events both in the world and one’s personal life that can benefit from having the ability to perform economic analysis for one’s self to identify good and poor financial decisions. It also allows the consumer to make knowledgeable choices about purchasing power and the value of a dollar. The two principles that this paper will focus on is the principle of voluntary exchange and the real-nominal principle. These two principles are useful in everyday life to assess the impact of the exchange of goods and services. Many laws and reforms are enacted that have an impact on the financial health and well-being

George Stigler, a Nobel Laureate in economics wrote about why Americans should have an interest and understanding of economics. He wrote, “The public has chosen to speak and vote on economic problems, so the only open question is how intelligently it speaks and votes” (Stigler, 1970). An economic literate population is beneficial in a democratic society for evaluating the major issues that may be voted upon. Economic savviness is as equally important for everyday household decisions such as buying a house, changing jobs, or how to invest one’s savings for retirement planning. Less than half of graduating high school students have taken a course in economics and rate themselves very low on their understanding of basic economic principles (Walstad, 1998). Learning some basic economic principles such as voluntary exchange and real-nominal principles will prove helpful when making economic choices for one’s self or being a part of the democratic

In today’s market, will a dollar buy a cup of coffee? It depends on where one buys their coffee. The value of a dollar is only as good as the purchasing power that it possesses. The real-nominal principle is the economic principle that does not look at money simply on its face value, but considers what can be purchased with a specific dollar amount (O’Sullivan, Sheffrin, and Perez, 2017). One of the benefits of the recent tax reform passed by the legislature gives working family households an additional one thousand dollars per child through the child tax credit starting in the year 2018 (Hassett, 2018). This would equate for an average family of four, two adults and two children, an additional tax benefit of two thousand dollars annually. Health insurance costs rise every year. According to the National Conference of State Legislatures (NCSL), the average health insurance premium increase for 2018, per person under the affordable care act in Oklahoma, increased $200 per month (NCSL, 2017). The increased tax benefit does not pay for even one year of the increased health premium for one member of the family of