What are Economic Laws?
Economic laws are a set of scientific rules that explain how economic phenomena occur. These laws govern aspects such as supply, demand, and exchange rate, among others.
Key points
- They govern aspects such as production, consumption, and trade.
- They are scientific rules that explain how economic phenomena occur.
- They are fulfilled independently of the will of individuals.
Characteristics of economic laws
Now that we know what an economic law is, let’s look at its main characteristics as a diagram to better consolidate this important concept:
- They are scientific rules that show how economic phenomena occur.
- These are relationships that have already been demonstrated and serve as a basis for economic research.
- These laws have an objective character, that is, they are fulfilled independently of the will of the individual.
- These laws govern aspects such as production, consumption, trade, among others.
- Economic laws can be modified if conditions change, and they can be extinguished if conditions cease to exist.
- It is the task of researchers to discover these laws.
Economic Laws: Simple Explanation
In other words, economic laws are fundamental rules that help us understand how economic phenomena work. They allow us to predict market behaviors, such as the relationship between supply and demand and how these affect prices.
Just like the laws of nature, economics also presents a series of laws that govern the phenomena that this discipline studies. With economic laws, we are talking about those relationships that are more than proven by various measurement tools, and that are always fulfilled.
Economic laws, therefore, express those most essential relationships in economics, in which it has been demonstrated that causality exists and, as a general rule, they tend to be fulfilled in almost all cases.
For example, the law of supply and demand explains how the price of a good rises when demand is high and supply is low, and vice versa.
It is also worth noting that economic laws arise after verifying that, under certain conditions, certain phenomena occur. Therefore, economic laws undergo modifications when these conditions are modified, in the same way that they disappear when these conditions are definitively eliminated.
Main economic laws
Below are some of the most important economic laws:
- Law of demand: Reflects the relationship between the demand for a good in the market and the quantity of the same. This relationship establishes that, as a general rule, the greater the demand, the lower the supply and the higher the price.
- Law of supply: Reflects the relationship between the quantity of a good offered and its selling price in the market. The greater the supply and the lower the demand, the lower the price. The lower the supply and the higher the demand, the higher the price.
- Law of supply and demand: Reflects the relationship between the demand for a product and the quantity of that product supplied. To do this, taking into account the price at which the product is sold.
- Law of scarcity: It arises from the insufficiency of various resources considered necessary and fundamental for human beings, giving rise to the necessary condition of prioritizing needs based on the available budget.
- Law of diminishing marginal utility: It is an economic law that establishes that the consumption of a good provides less additional utility the more it is consumed.
- Law of diminishing returns: Shows the decrease in a product or service as productive factors are added to its creation.
- Okun’s Law: Reflects the relationship between economic growth and employment in a given country.
- Walras’ Law: It is a principle of general equilibrium theory. It states that the sum of aggregate demand must equal the sum of aggregate supply, taking into account prices.
- Gossen’s Laws: These are three economic laws, developed in 1854 by the economist Hermann Heinrich Gossen. These three laws are based on the consumption of the citizens of an economy and are considered a fundamental basis of marginalist theories.
- Engel’s Law: It states that when the income level of consumers increases, the proportion of income spent on food grows at a slower rate than the percentage spent on other goods such as luxury goods.
- Law of one price: It states that in competitive markets, with free trade and no transportation costs, the same good or service must have the same price in all countries.
- Say’s Law: Indicates that it is the supply that creates the demand, so there cannot be a demand without a prior supply.
How do economic laws arise?
Economic laws are discovered by a researcher who asserts a consistent relationship between two or more variables or factors, each of which represents a property or measurement of particular systems.
An economic law is always discovered under a long process of research, but it is never invented by the researcher.
Importance of economic laws
These laws lay the foundations of economic knowledge. Under these principles, research is initiated that subsequently expands knowledge and perfects relationships. In fact, many theories have arisen from changes in the conditions that caused a particular law to be fulfilled, and that after these changes, the law is fulfilled in a different way.
Therefore, we are talking about the principles that govern this discipline, which are of great importance for all those who dedicate themselves to studying it and expanding their knowledge in certain economic fields.