OPINION | 12 economic concepts everyone should know

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WHEN I tell people that I work at the Foundation for Economic Education, they sometimes ask: “What economic ideas should people understand?”

We at FEE have thought about this quite a lot for our articles, courses, seminars, and videos. We have distilled “economic thinking” into 12 key concepts. The following list has guided us internally for a few years, and I figure it’s now time to share it with the world.

  1. Gains from trade: In any economic exchange, freely chosen, both parties benefit–at least in their own minds. (https://courses.fee.org/courses/module-4)
  2. Subjective value: The value of any good or service is determined by the individual human mind. (https://fee.org/articles/subjective-value/)
  3. Opportunity cost: Nothing is free, and the cost of anything is what you give up to get it. (https://fee.org/articles/lyft-drivers-have-a-profound-understanding-of-opportunity-cost/)
  4. Spontaneous order: Society emerges not from top-down intention or planning but from individuals’ actions that result in unplanned outcomes for the whole. (https://fee.org/articles/spontaneous-order-is-not-an-engineered-outcome/)
  5. Incentives: Individuals act to maximize their own reward. (https://fee.org/articles/the-power-of-incentives/)
  6. Comparative advantage: Cooperation between individuals creates value when a seller can produce a given item or service at a lower cost than the buyer would spend to produce it himself. (https://fee.org/articles/how-the-theory-of-comparative-advantage-saved-my-marriage/)
  7. Knowledge problem: No one person or group knows enough to plan (and force) social outcomes, because information necessary for social order is distributed among its members and revealed only in human choice. ( https://fee.org/articles/hayek-the-knowledge-problem/)
  8. Seen and Unseen: In addition to the tangible and quantifiable effects, there are quite often invisible costs and unmet opportunities to any action or policy. (https://fee.org/resources/that-which-is-seen-and-that-which-is-not-seen)
  9. Rules matter: Institutions influence the decisions individuals make. For example, property rights (https://fee.org/articles/human-rights-are-property-rights/) extend from the reality of scarcity which demands that ownership must be vested in individuals and not a collective. (https://fee.org/articles/the-five-institutions-of-the-market-economy/)
  10. Action is purposeful: Each person makes choices with the intention of improving his or her condition. (https://fee.org/articles/economics-helps-you-deal-with-difficult-people/)
  11. Civil society: Voluntary association permits people of all backgrounds to interact peaceably, create value, cultivate personal character, and build mutual trust. (https://courses.fee.org/courses/module-seven)
  12. Entrepreneurship: Acting on an opportunity to gather underused, misused, or undiscovered resources and ideas to create value for others. (https://courses.fee.org/courses/module-one)

You might think about all the ways and places these principles appear–as you shop, socialize, and plan your future. As we like to say, economics is everywhere!

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