Principles of Economics

Every problem in economics mostly belongs to the case of either optimization or equilibrium. Economic agents follow the optimization process when they make their decisions. As a consequence of this, each economic agent finds the most efficient solution under the given constraints. Because of the scarcity, most of the optimization problems in economics are the constrained optimization. Because the process of optimization depends on the assumption that every economic agent is rational, the equilibrium that can be reached by the interaction among economic agents, also heavily depends on the rationality. In other words, rationality is one of the key assumptions in economics.

In economics, all the economic agents try to maximize what they wish for but to minimize what they are averse to. The optimization includes both the maximization and minimization so we can achieve our goal. Especially, in microeconomics, the individual economic agent has the distinctive goal of the optimization. The reason why individual consumers participate in the market is to maximize their utility. In addition, the market demand can be derived from the aggregation of each individual utility maximizing behavior. It’s not surprising that we can apply this logic to the firm’s supply side.

One of the most important concepts in economics is the equilibrium. The equilibrium quantity and price in market theory, as well as GDP and the general price level in macroeconomics, are the phenomena from the concept of the equilibrium. The optimization of each individual can be realized in the market and as a consequence we can observe the equilibrium. Intuitively, the equilibrium is the balanced state in the market under the fighting among all different forces.


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