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.
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