Social Sciences

Examples of Principles of Economics

Principle 1: People face decisions
example: A family in general does not have an unlimited budget, and thus each month it must decide how the disposable income will be distributed among the different needs to be satisfied: food, education, health, entertainment, housing and others . Thus, when a peso is spent on one activity, there is one peso less to spend on another.

Principle 2: The cost of something is what you stop receiving for obtaining it
for example the decision to study at the University. The benefits of this decision can be summarized as intellectual enrichment and better job opportunities after graduation. What are the costs? Obviously within them we must include the monetary cost of tuition, fees, food, transportation, photocopies, books and materials that will be used throughout the years of study, but additionally we must consider the use of the time that is allocated to study. The value of this time corresponds to the best salary that you would have received for working instead of studying

Principle 3: Rational people think in marginal terms
Suppose an airline must decide how much to charge its passengers for a flight between Santiago and Miami. Suppose that flying the 6,653 kms round trip in an aircraft with a capacity of 200 seats costs US $ 120 thousand. In such a case, the average cost per seat is US $ 600. One might be tempted in such a case to conclude that the airline should not sell tickets at prices below US $ 600.

However, the airline can increase its profits by thinking marginally. Suppose the flight is about to depart with 20 empty seats, and suppose there is a passenger waiting to board the plane and is willing to pay $ 500 for it. Should the airline sell you a ticket? Of course yes. If the plane has empty seats, the cost of adding a passenger is negligible: although the average cost is US $ 600, the marginal cost is simply the food that the extra passenger will consume. Thus, as long as the passenger is willing to pay more than the marginal cost, selling him a ticket is profitable.

Principle 4: People respond to incentives
A pathetic example of the above is verified in Santiago in winters when floods occur as a result of the rains, flooding the streets, and individuals appear with cargo tricycles who for a modest sum offer the transport service between one end of the street and the other. As a newspaper report showed, several of these individuals are dedicated during the fall to cover the gutters with leaves, with the explicit purpose of generating this alternative employment.
A pathetic example of the above is verified in Santiago in winters when floods occur as a result of the rains, flooding the streets, and individuals appear with cargo tricycles who for a modest sum offer the transport service between one end of the street and the other. As a newspaper report showed, several of these individuals are dedicated during the fall to cover the gutters with leaves, with the explicit purpose of generating this alternative employment.
They offer the shuttle service between one end of the street and the other. As a newspaper report showed, several of these individuals are dedicated during the fall to cover the gutters with leaves, with the explicit purpose of generating this alternative employment.

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