How can you use economic principles to understand global issues better?

1 Scarcity and choice

The first principle of economics is that resources are scarce and people have to make choices. Scarcity means that there is not enough of something to satisfy everyone's wants and needs. Choice means that people have to decide how to allocate their limited resources among competing alternatives. For example, when you decide how to spend your money, time, or energy, you are making choices based on scarcity. Similarly, when governments, businesses, or organizations decide how to allocate their budgets, policies, or programs, they are also making choices based on scarcity. Scarcity and choice are relevant for any global issue that involves trade-offs, opportunity costs, and priorities.

2 Supply and demand

The second principle of economics is that markets are governed by supply and demand. Supply is the amount of a good or service that producers are willing and able to offer at a given price. Demand is the amount of a good or service that consumers are willing and able to buy at a given price. The interaction of supply and demand determines the equilibrium price and quantity of a good or service in a market. For example, when the demand for oil increases due to economic growth, the price of oil rises, which encourages more supply from existing or new sources. Supply and demand are relevant for any global issue that involves prices, quantities, and incentives.

5 Comparative advantage and trade

The fifth principle of economics is that countries can benefit from trade by exploiting their comparative advantage. Comparative advantage is the ability of a country to produce a good or service at a lower opportunity cost than another country. Opportunity cost is the value of the next best alternative that is foregone as a result of making a choice. For example, when a country has a comparative advantage in producing a good or service, it can export it to another country that has a comparative disadvantage in producing it, and import another good or service that it has a comparative disadvantage in producing. This way, both countries can increase their total output and consumption by specializing and trading. Comparative advantage and trade are relevant for any global issue that involves production, consumption, and specialization.

6 Growth and development

The sixth principle of economics is that economic growth and development depend on various factors, such as institutions, policies, technology, and human capital. Economic growth is the increase in the total output or income of a country over time. Economic development is the improvement in the quality of life or well-being of a country's population over time. For example, when a country has strong institutions, such as rule of law, property rights, and democracy, it can foster economic growth and development by creating a stable and conducive environment for investment, innovation, and entrepreneurship. When a country has effective policies, such as fiscal, monetary, and trade policies, it can foster economic growth and development by stimulating demand, supply, and competitiveness. When a country has advanced technology, such as innovation, diffusion, and adoption, it can foster economic growth and development by increasing productivity, efficiency, and quality. When a country has skilled human capital, such as education, health, and training, it can foster economic growth and development by enhancing creativity, knowledge, and capabilities. Growth and development are relevant for any global issue that involves output, income, and well-being.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?