Ten Principles of Economics and How Markets Works
ECO/365 Principles of Microeconomics
January 19, 2017
Michael Blakley Ten Principles of Economics and How Markets Works
As a part of the firm’s marketing research committee we need to understand the fundamentals of microeconomics and the ten basic principles associated with economics and its workings. (Mankiw, 2013) As discussed in Principles of Microeconomics, the following four principles deal with understanding the decision making process of people, which are:
Trade-offs – the everyday act of deciding to buy one thing over another or spending one’s day, such as going skiing vs. working on a project at work that could help get a promotion). When discussing trade-offs…show more content… Making the calculation, the ticket should be $500, however if they are short of filling the plane by 10 seats, they can reduce the loss of those ten seats and possibly still make money by selling the last few seats for a little less as long as it covers the marginal cost of associate with the peanuts and soda the passenger might use (Mankiw, 2013).
Incentives – this principle is simple to understand, which involves enticing people to do something you want them to do by giving them something they view as worth the trade-off or difference in cost of making one decision over another. (Mankiw, 2013)
The next three principles deal with the interaction of people.
Trade makes Everyone Better – by trading with one another we can all win or come out for the better. That’s because, not everyone can make something as good or at the same cost as someone else, for the simple reason that we do not have access to the same amount resources or skills to produce something. (Mankiw, 2013) A town in the mountains would have a difficult time suppling the same amount or quality of fish that a town located on a lake or the coast of an ocean. Yet the same town has access to a better supply of granite from its quarries or lumber from its forests than the town better equipped for fishing.
Organizing Economic Activity with Markets – Markets are made up of a multitude of companies and individuals buying, selling, and consuming goods and services. These markets are in turn