What are some basic economic principles?
The odds are stacked against women when it comes to economic equality and financial empowerment. And it doesn't help that financial institutions largely exclude women. The whole system needs an overhaul, but in the meantime we want to answer your money, finance and economics questions. Every week we'll answer one of your questions in a useful and straightforward way. Today's question is...
What are some basic economic principles?
As with many things in economics, there is no consensus on the basic principles. When you do a quick search, some might suggest there are six and others say there are 10 basic principles. We’ll go with four.
When coming at it fresh, at its most basic, it helps to think of economics as the study of the way to manage the distribution of scarce resources.
So let’s start with the scarcity principle. This essentially means the world has limited resources to meet unlimited demands, which brings us to the concept of supply and demand. This theory has been around for a very long time – popularised by Adam Smith in 1776 – and tries to explain the relationship between supply and demand.
According to the law of supply and demand, if the price of something goes up, there will be less demand for it. But if the price is too high, not enough people will want to buy it so at some point there will be too much supply. When there is too much supply and not much demand, the price should go down. Basically supply and demand determines the price and the volume of goods on the market, in theory!
Then there is the cost and benefit principle. Think of this like making a pros and cons list, just with details on how much something is going to cost versus how much it is going to benefit. It’s how businesses and individuals make some of their decisions.
And the final principle is that people respond to incentives. These can be financial incentives – like pay – or incentives like the feeling of satisfaction something generates, which goes under the category of intrinsic incentives.
Feminist economics
Whenever we think about economics, even some of its most basic principles, it’s worth thinking about how our current economic systems have been implicitly designed for men. It is also why important things many women do, such as raising children, taking care of the elderly or housework, are not considered relevant when it comes to economics.
According to feminist economic theory, traditional economic studies have ignored gender issues and have largely disregarded women’s lives and work. In economic theory, there is a homo economicus, or the economic man, who is characterised as a rational man who pursues wealth for his own self-interest. There isn’t an “economic woman”.
Professor Linda Scott, who we mentioned in a previous newsletter, popularised the idea of the ‘double X economy’ - the value of ‘women’s work’ left out of the system and the economic benefits of addressing this.
Feminist economics has been trying to address some of these issues and analyse patriarchy and capitalism as related forms of dominance.
Action of the week: Let us know if you’re interested in suggestions of which women economists we recommend reading.
About us
Selin and Nat are financial journalists who met working together at a publication in London. If you are ever worried a question you have might sound stupid, we ask each other such questions all the time.
Got a question to ask? Send it to selinandnat@gmail.com and we'll try to answer it in an upcoming newsletter. All questions are anonymous. Follow us on Instagram @rebalancing_act.
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