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December 19, 2018 

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ZERO BOND: Also termed a zero coupon bond, a bond that does not pay interest, in which the return is generated by the difference between the purchase price and the face value paid at maturity. Because they do not pay interest, zero bonds are sold at a discount. For example, a $10,000 zero bond that matures in one year, would generate a 10% return if it sold at a discount of $9,000.

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SEVEN ECONOMIC RULES:

A set of seven fundamental notions that reflect the study of economics and how the economy operates. They are: (1) scarcity, (2) subjectivity, (3) inequality, (4) competition, (5) imperfection, (6) ignorance, and (7) complexity.
Like driving has an assortment of traffic laws, a journey through economics has a few rules of its own. While breaking these seven economic rules will not result in a ticket or jail time, it could limit an understanding of the subject.

Here is a brief look at these seven economic rules:

  1. SCARCITY: The economic pie is limited. Society has limited resources and unlimited wants and needs. Because there is only so much to go around and everyone wants more than they have, what one gets, another does not. That means that virtually every good produced, every action taken has an opportunity cost.

  2. SUBJECTIVITY: Prices depend on preferences. The value of goods and services is subjective. Buyers have personal likes and dislikes and are willing to pay different prices for goods. Sellers base prices on production costs which depend on the subjective value that resource owners place on their resources.

  3. INEQUALITY: Life is not fair. Resources, goods, services, income, and wealth are not equally distributed. Some people have more than others. Inequality can be caused by differences in natural abilities, parental wealth, the luck of birth, and other factors beyond one's control. Inequality also results from effort, education, training, shrewd decision making, and just plain hard work.

  4. COMPETITION: Competition is good. Competitive markets promote efficiency. Competition among buyers in search of products and competition among sellers in search of buyers brings out the best in both--and in the economy. Limited competition on either side is bad for the market and bad for the economy. Limited competition among sellers causes higher prices for buyers. Limited competition among buyers leads to lower prices for sellers.

  5. IMPERFECTION: Nothing is perfect and never will be. Society can fix some problems, but not every one. Seeking perfection from an imperfect world can be frustrating and even counter productive. Markets, a useful way to deal with scarcity in many circumstances, have deficiencies that can be corrected only by government action. Some deficiencies are minor, others are monumental. Governments, however, are also flawed. Government actions intended to fix market flaws are also imperfect. Invariably, the choice in a mixed economy is between the lesser of imperfections.

  6. IGNORANCE: Nobody knows everything. Information is a scarce good. Acquiring information is governed by the same scarcity problem as any production. It requires limited resources that have alternative uses. This imposes an opportunity cost on society. The cost of getting information limits how much anyone can "buy." That is why everyone is ignorant about something. Sellers who have a good usually have more relevant information than buyers who want it.

  7. COMPLEXITY: There is more than meets the eye. The world is a complex beast. Society has millions of people interacting in production, consumption, and allocation activities. Every action, every purchase, every production, every sale, has several effects. Some effects are intended and obvious, others are unintended and more subtle. An action that may be good for one person, may be just as bad for another.

<= SERVICES, CONSUMPTIONSEVENTH RULE OF COMPLEXITY =>


Recommended Citation:

SEVEN ECONOMIC RULES, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: December 19, 2018].


Check Out These Related Terms...

     | first rule of scarcity | second rule of subjectivity | third rule of inequality | fourth rule of competition | fifth rule of imperfection | sixth rule of ignorance | seventh rule of complexity |


Or For A Little Background...

     | scarcity | economics | three questions of allocation | economic thinking |


And For Further Study...

     | economic analysis | economic goals | four estates | government functions | political views | distribution standards | market | elasticity | short-run production analysis | consumer demand theory | circular flow | business cycles | competitive market | demand price | supply price | market structure continuum | multiplier principle |


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