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10 common sense in economics you should know

1. “Marginal Utility” (Marginal Utility)

When you eat the first piece of chocolate, it is a perfect enjoyment. When you eat the second piece, it is satisfying. It is already more difficult to eat the fifth piece. It is very painful when you eat the fifteenth piece.

“Marginal utility” was put forward by British economist William Jevons in the 19th century. During the same period, Alfred Marshall further proposed the “supply and demand theory” and the “supply and demand balance point”. After that, this theory became one of the most basic tools of economics.

2. Rational broker (Rational Economic Man)

That is, people who determine their behavior after measuring the marginal cost and marginal utility. Neoclassical economists believe that everyone is a “rational broker”, so in a free competitive environment, the focus of competition is that neither buyers nor sellers can manipulate the market, and neither buyer nor seller can change prices to achieve “perfect competition”. status.

For example, there are 5 fish sellers in the seaside market. If the price of fish today is 10 yuan, it is difficult for one of the fishmongers to sell it at a price of 15 yuan. Correspondingly, it is also difficult for you to sell it at a price of 8 yuan. Five fishmongers bought fish.

3. Conspicuous Consumption

We do not want to be in demand shopping like a completely rational person, but to get the approval of others and consume. The rapid accumulation of wealth has formed a leisure class. After the price of goods rises, the purchase demand does not fall but rises. For the nouveau riche, they need to gain social affirmation by showing off their wealth, and this kind of conspicuous consumption will spread to the lower social classes who want to become rich. People are dissatisfied with the boring and arduous labor and compete to imitate the pursuit of the rich. With more consumption, the rich are more generous in order to lead the trend, and in the end, in order not to be left behind, everyone is exhausted.

Torstein Veblen (Torstein Veblen) was born in 1857 and died in 1929. He was a critical observer of the rapidly changing society he lived in, and he was out of place in this society.

In the Gilded Age, the new wealth was only shining with golden light on the surface, but under the superficial layer it was a wasteful and immoral society.

4. Invisible Hand

Adam Smith said in “The Wealth of Nations” that society seems to be guided by an “invisible hand”. As long as the economy of free trade is maintained, society will continue to function normally. All commodities produced in a country’s economic activities are the country’s wealth, and the total value of all these commodities is a country’s national income. The importance of economy is to provide people with consumer products.

The labor division of labor unions greatly improves labor efficiency, and the division of tools is universal. Even the poor at the bottom of society will benefit from it. But although the division of labor helps to increase production, it makes the workers “stupid and helpless.”

Adam Smith was born in Scotland in 1723 and died in 1790. Many viewpoints in the wealth of nations were further studied and expanded by later economists, laying the foundation of modern economics tuition in Singapore.

 

5. Imperialism with strong boats and guns (Imperialism)

Whenever you hear the word “imperialism”, everyone will think of ships, artillery, and colonies. According to the economist Hour, capital gained new life in the process of imperialist expansion. This also answers This brings up the question of why capitalism did not perish as Marx predicted. Hour believes that before the birth of imperialism, both workers and capitalists received income from the manufacture of goods, but the income gap is getting bigger and bigger, the rich people have higher and higher incomes, and more storage is produced, which means that the country Wealth is more “saved” rather than consumed. The money saved is used for “Investment”. The problem is that investment has increased, but fewer people are willing to buy or can afford it, resulting in with more savings, benign funds are decreasing. As a result, everyone unanimously set their sights on overseas. There is still a lot of room for profit in overseas investment. The imperialist powers invaded other countries and established overseas colonies. Therefore, excess savings is the economic basis of imperialism.

The source of imperialism is greed. The army of imperialism is a tool used to suppress the people and help capitalists accumulate more wealth. When the quality inspections of competing capitalist countries set out to find new markets, they would constitute obstacles to each other. As a result, a series of territorial competitions occurred at the end of the 19th century and eventually led to the outbreak of the First World War a few years later.

6. The power of money (Monetarism)

Milton Friedman, who was awarded the Nobel Prize in Economics in 1976, put forward the money supply theory, which mainly explains the velocity of currency (Velocity of Circulation), which is simply a paper currency The number of times that different transactions change hands, it is obvious that the speed of currency changing hands will affect the money supply. A small money supply will inhibit transactions and slow down the speed of transactions. Increasing the money supply will encourage consumption, increase the level of inflation, and cause more Output, the factory will hire more workers to meet demand, thereby reducing the unemployment rate. Therefore, Friedman’s main point is that the economy is very stable if no one is involved. As long as the government abolishes corporate taxes and fees and relaxes restrictions on the market, it can encourage more production and hire more workers. But Keynesians believe that although increasing the money supply can stimulate the economy, money is unlikely to become a powerful force. What is more powerful is government spending and taxes, that is, the government’s fiscal policy.

7. Loss Aversion

What you have already grasped, even if it is not your own, will have an impact on your decision-making. A single chestnut can explain what “loss aversion” is. Both groups are asked to rate a coffee cup. The difference is that each of the first group is given a cup first, and they are asked to answer how much they are willing to pay the lowest price. Go and sell this cup in your hand. The second group did not have a cup in advance, and asked them to answer how much they were willing to pay to buy the imaginary cup. According to general intuitive experience, the prices given by these two groups should not be much different, but the actual results show that the selling price given by the first group (seller) is two times the buying price given by the second group (buyer). Times. Richard Thales believes that this irrational behavior is by no means accidental. Although people can think rationally, they often cannot withstand immediate temptations.

Richard Thales, a behavioral economist born in 1945, first proposed this concept in 1980. There are many examples in life that use the principle of loss aversion. For example, government departments use various hidden taxes to unknowingly “take” our money, such as personal income tax, consumption tax, value-added tax, etc., for us It will not cause a sense of deprivation. Savvy merchants are even better at using popular people, such as coupons. Merchants will issue limited-time promotional coupons to customers. If the deadline is almost reached, you will feel a loss if you don’t use them. It’s a pity that it hurts, and it is very likely to go. Use them. The “deposit” mechanism is also a typical and successful commercial application. If we talk about the example of coupons, we only lose that part of the benefits given by the merchant. Once the deposit is paid, if we default, the loss will be our grandfather Mao. Although the relative total price is definitely not much, this loss aversion can definitely reduce the possibility of default to a lower level.

8. Keynesian monetary policy (Monetary)

Keynesians liken support to water in a bathtub. When the outflow of savings exceeds the inflow of investment, the water level will drop and the economy will decline. Higher money supply will result in lower interest rates, thereby promoting investment, bringing higher national income and high employment rates, thus encouraging government tax cuts. The tax reduction plan allows consumers to spend more boldly. The actual circulation of these money and the economy, compared with the less tax collected, increases the demand for goods exponentially.

9. You can’t deceive everyone in the long run with Rational Expectations

I believe that most of us will not spend time on understanding macroeconomic models before making decisions, but we will also do this indirectly by watching TV, news or newspapers. These channels themselves are dependent on the public. Expectations or expectations of private forecasters. Economists call these expectations based on a forward-looking approach as rational expectations. When people make predictions for the future, they will make use of the information they obtain and make predictions as accurately as possible.

The basic view of rational expectations is simply: people’s expectations for the future are quite accurate or gradually approaching accurate. Regarding this point, the Western proverb often quoted by the school of rational expectations is: “You can deceive all people in a period of time, or some people in a long period of time, but you must never deceive all people in a long period of time.”

The introduction of the rational expectation hypothesis is one of the most important developments in macroeconomics in the last 30 years. It has seriously challenged Keynesian economics and proved the failure of the Phillips curve.

10. Creative Destruction (Creative Destruction)

Let the one I admire the most as the finale. The ups and downs of capitalism originate from the endless waves of innovation, as well as the rise and fall of entrepreneurship and imitation. Monopoly has a particularly important significance for the creation of innovation. Only when the official expectation of high returns will have entrepreneurs take risks and try innovation. The creative destruction of the market balance in the process of taking risks is “creative destruction.”

We must know the point of view that was put forward 50 or 60 years ago. When this subversive concept was put forward, people were shocked. Today, the tremendous value destroyed and created by the global econs tuition In Singapore perfectly confirms this forward-looking statement. It can be said that the power of creative destruction is still increasing, and it has become an important core concept in mainstream economic discourse.

Finally, briefly talk about Schumpeter, the aristocratic American Austrian economist Joseph A. Schumpeter (Joseph A. Schumpeter), who was born in 1883 and studied at an aristocratic middle school in Vienna when he was young. Obtained a doctorate degree in law in Vienna, and moved to the United States in 1932 as a professor of economics at Harvard University. When teaching at Harvard University, he created the typical Schumpeter’s way of entering the classroom, taking off his hat, taking off his coat, and then taking off his gloves one finger by one finger, and he started his lectures with an aristocratic Austrian accent.

 

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