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Principle of Economics
Economics is a social science and like other sciences, it has its own principles or laws. Here, we have tried to explain the basic assumptions and broad theories when it comes to formulating these principles.
- Maximum satisfaction: This broadly relates to the human activities or attempts which are concerned with deciding the preferences of innumerable wants on the basis of degree of their urgency, and allocate available resources which are scarce.
- Man is a rational being: It indicates that the person behaves rationally while deciding his preferences. He does not behave on the basis of impulses while making a choice between his wants, and allocating resources to satisfy those wants.
- Average man: This is the term which explains the economic motives and activities of a group of people. If we wish to find out the total market demand for any particular commodity, it is necessary to consider the demand of an average consumer for that commodity and then multiply it by the total number of consumers in the market.
- Other things being constant: The term 'other things' refers to income, taste, price, fashion, prices of substitute goods in the market, etc. These factors are assumed to be constant so that the correct analysis of the economic activity can be made.
- Internal Economics
- External Economics
- Technical Economies: It is concerned with the size of the firm, superior technique, or increased specialization.
- Managerial Economies: It arises by creating special departments or functional specializations. It is useful when production is taken on a large-scale.
- Commercial Economies: Purchase of material and goods, greater bargaining power in case of large purchases, and concessions in transport.
- Financial Economies: Big firms enjoy the position of better creditworthiness and can borrow money at a favorable rate of interest.
- Risk-Bearing Economies: A big firm can spread the risks over a larger area by diversifying output.
- Economics of concentration (advantages of localization)
- Economics of information: Publications, technical journals, and central research institutes are some of the examples.