Key Economic Ideas.

People are rationale

As a first economic idea, economists assume that people are rationale in the society. It is identified that scarcity is one of the major economic problems, because unlimited wants and needs of people typically exceed the limited available resources on the earth. Therefore, people have to be selective all the time to take their final decision about choosing the final product or service. In this context, people have to wisely decide, what they should produce or buy. It is true that people do not behave in a rationale manner all the time, but the assumption of “everybody is rationale” is very crucial in explaining the choices of people make. Due to the fact that limited resources are not enough to fulfil the people’s wants, producing more products of specific good or service leads to producing less good or service in other product, which creates a trade – off situation. At this point, people have to select and take a decision about what they must produce more and what they should produce less according to the demand of the society.
For instance, in the world, limited number of land area is available for harvesting, and farmers must be selective, in what they must give priority to harvest in the limited land available for them. Some people have wheat or wheat consisted food as their staple food, while some have rice or rice consisted food. Consequently, if farmers harvest more wheat, it leads to harvest less rice. Therefore, in this complicated context; they have to take a decision on demand of the food, and use all available information that they need to achieve their targets by measuring the benefits and costs, deciding when the benefits outweigh the costs (Keane, M 2010). According to all indicated facts, in economics, critics assume that people are rationale and it is utilized to explain the choices that people make.

People respond to Economic incentives

It is identified that people have various motives to work their own and gain maximum earns. However, economics incentives are very important, since they respond to it proactively. Generally, people wish to have highest net income and lowest net lost. Therefore, they react to economic incentives immediately. For instance, when the employer need to maximize their production and maximize their wealth, they may think to offer bonuses and rewards to employees, because they think their efficiency and productivity level surge to high levels. Likewise, employees can be motivated with economic incentives and they respond to it for have a greater net gain and incentives are able to treat to economy well. As a result of this, economists have identified ‘People respond to Economic incentives’ as a second key economic idea, since it has great impact on economy.