PRINCIPLES OF ECONOMICS
Q1.These principles include,
Tradeoffs-This is a decision based on a situation whereby one has to compromise on an item, quantity or quality in order to gain in a different aspect or item, in other words where one of the things involved increases the other decreases. In real life situation the principle is common because despite the fact that we want to have a lot of things sometimes it is not economical. Example one would wish to have both a desktop and a laptop, in order to carry the laptop around and use the other at home its wise to buy the laptop to use in both.
Incentives-An incentive is something given to the buyer in order to induce their buying. Example reduction of price in an item or an offer to buy one and get another free. Incentives can have a positive or negative effect to the buyer but the important part is that they respond to them. An example in real life is offers given in supermarkets to reduce slow moving stock.
Opportunity cost-Due to scares resources sometimes individuals have to make decisions to forgo an item they wanted and get another; therefore opportunity cost is the cost of the forgone item. In real life it’s common to choose an item over another especially if it gives you more satisfaction example choosing a house over a car.
Marginal thinking-This is whereby individuals purpose to get more worth in a given item, a good example is if you have no apples when buying one you feel the worth other than when you have a lot of them, This is important in real life because it helps save resources and not misuse.
Voluntary exchange-This is a case whereby the producer and consumer exchange goods freely out of a self- interest in an open market. It is important in real life because sometimes people need item but has no resources yet on the party does, an example is where students would exchange books they both need instead of buying.