Ten Key Principles of Economics

1. Everything has a cost. There is no free lunch. There is always a trade-off.
2. Cost is what you give up to get something. In particular, opportunity cost is cost of the tradeoff.
3. One More. Rational people make decisions on the basis of the cost of one more unit (of consumption, of investment, of labor hour, etc.).
4. Incentives work. People respond to incentives.
5. Open for trade. Trade can make all parties better off.
6. Markets Rock! Usually, markets are the best way to allocate scarce resources between producers and consumers.
7. Intervention in free markets is sometimes needed. (But watch out for the law of unintended effects!)
8. Concentrate on productivity. A country’s standard of living depends on how productive its economy is.
9. Sloshing in money leads to higher prices. Inflation is caused by excessive money supply.!!
10. Caution: In the short run, falling prices may lead to unemployment, and rising employment may lead to inflation.



Friday, August 27, 2010

Airline Ticket Prices

The airline pricing system is confounding, but the presence of discount airlines and business travelers heavily influences the prices in some routes. Click on the link to access some clarity to this riddle and also view an accompanying video clip.

Wednesday, August 25, 2010

Soft Drink Oligopoly


Though there appears to be a lot of variety and a multitude of choices in the soft drink industry, the vast majority of products emanate from just three firms. The "pseudo-variety" is in reality a proliferation ploy to gobble up all of the remaining shelf space from smaller rivals.

Thursday, August 19, 2010

Downsizing Boomers Threaten Economic Recovery

The baby boom generation reflects anyone born between 1946 and 1964. Today there are around 80 million people in that category and the leading edge is in the process of retiring. This group's savings has been ravaged in recent years by the variety of bursting bubbles that has deflated the personal wealth of many. Though it is natural to downsize one's life as age creeps upon us, it is even more likely for today's boomers because of their recent hardships. This couldn't happen at a worse time as the nation attempts to crawl back from the depths of one of its worst recessions. This may make it very difficult for consumers to lead us to recovery.

Thursday, August 12, 2010

Let The Bush Tax Cuts Expire

Though it seems illogical to, in effect, raise taxes during an extreme bout of unemployment, the article suggests just that. The author states that tax cuts are an inefficient form of expansionary policy because people are often inclined to save a portion of what they don't pay to Uncle Sam. Instead, the increased revenues could be used for direct stimulus that would be applied exclusively to the wounds still out there.

Sunday, August 1, 2010

Price Holds The Key


Click on the title and you'll access a passionate plea for more substance in the efforts to wean Americans off of oil. The opinion here is to raise prices through heftier gas taxes based on the assumption that high prices create disincentives and motivates to seek alternatives. At this stage, gas taxes are lower than they've been at anytime over the last 40 years (adjusted for inflation). The implementation would be painful, but price is almost always a market changer.