Scenario One
Even though generally more expensive, energy-efficient appliances and vehicles sell better with a rebate or tax credit.
Principle no 4 : People usually respond to incentives, exploiting opportunities to make themselves better off.
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Justification: rebates and tax credits are incentives that motivate homeowners to buy expensive items through offsetting some costs associated with the appliance change or repair. The demand for energy-saving vehicles and appliances is high, but the high price associated with the items makes the sales volume low. Thus, tax credits and rebates enable people to reap benefits for energy saving by saving money on their tax return or getting rebates to offset some costs on the appliance change or repair.
Scenario Two
Airlines will charge a fee for each additional suitcase you may want to take with you on a trip. Principle no 5 : There is gain in trade
Justification: Airlines are in the business of transporting people and cargo through the air from one airport to another. However, transporting people involves carrying some of their cargo (suitcase) free. However, the amount of cargo carried by an individual customer should be limited to avoid killing the cargo carriage business line. Thus, to gain, airlines charge fees for any additional suitcase a customer carries aboard.
Scenario Three
At a restaurant, when ordering an entrée, you get to choose two side dishes from a group of five side dishes.
Principle no 1 : People must make choices because resources are scarce
Justification : an entrée is an appetizer taken before the main meal. Customers in a restaurant need to make a choice of a few entrée items they need other than making a wide choice of items. Making the entrée entails the use of restaurant resources, which are also business resources that are scarce by nature. Thus, to avoid misuse of resources that are scarce, the customer's choice of entrée is limited.
Scenario Four
Instead of growing your own food and making other necessities, you decide to specialize in a particular profession and purchase things, even things that you would not have been able to make yourself.
Principle no 3: "How much" decisions require making trade-offs at the margin: comparing the costs and benefits of doing a little bit more of activity versus doing a little bit less .
Justification : Human beings cannot do all economic activities at the same time. Rational humans compare the cost and benefit of involving in one or more economic activity ( Mankiw, 2016) . By trading the margins or profitability from a specific activity, one may determine how much to indulge in activity and use the proceeds from the activity to have access to other activities.
Scenario Five
There is an incredible variety of goods and services available at many different price points, even though no single entity or government is deciding or dictating the market what to do.
Principle no 8 : Because people usually exploit gains from trade, markets usually lead to efficiency.
Justification : both traders and customers exploit gain in the market, and in a situation where the is a free market mechanism, there is market efficiency, and market equilibrium is attained without the influence of the government or other controlling entities. Thus, due to information and market efficiency, at different price points, there is goods and services trading in the market.
Scenario Six
In its effort to limit the effects of rising inflation, the Federal Reserve System reduces the quantity of money in the economy, but sees an increase in unemployment.
Principle no 10: One person's spending is another person's income .
Justification: when the Federal Reserve System reduces the quantity of money in the economy, the flow of cash is reduced ( Mankiw, 2016) . There are fewer funds for people to spend in production; hence, most people become jobless. Thus, as some people spending on economic production is reduced, some people lose their income as they become jobless.
Scenario Seven
While consuming the same amount of farmers' labor and capital, the newly developed hybrid crops achieve twice the yields of the previous crops.
Principle no 11: Overall spending sometimes gets out of line with the economy's productive capacity
Justification : productivity is measured by a comparison of inputs and the output thus in this scenario, the economic productivity capacity of the new hybrid is better since the previous crops are out of line with the economy's productive capacity
Scenario Eight
You have noticed that the same amount of money buys you fewer goods and services than it did a year ago.
Principle no 12 : Government policies can change spending .
Justification : Government policies are not static and are ever on the change. The policies significantly impact on economic productivity ( Mankiw, 2016) . Government policies also impact both domestic and international trade leading to a hike in the price of commodities.
Scenario Nine
You worked for extra pay on holiday and therefore missed out on your neighbor's' barbeque. Principle no 2 : The opportunity cost of an item — what you must give up in order to get it — is its true cost.
Justification: opportunity cost is the ability to forgo an item in order to get or enjoy the utility of another item ( Hill, Griffiths and Lim, 2018) . In this scenario, one has to be missed out on the neighbor's' barbeque so as to get time to work for extra pay for the holiday.
Scenario Ten
Two major suppliers of powdered baby food formula are challenged by the government on the grounds of price-fixing.
Principle no 9 : When markets don't achieve efficiency, government intervention can improve society's welfare.
Justification: fixing of price by suppliers of common products and which necessities to the society can result in market inefficiency. Public information on the price of the products may not reflect the true value of the goods; hence, consumers may be exploited ( Hill, Griffiths and Lim, 2018) . Thus, the government can intervene by challenging the price-fixing for the benefit of the consumers.
Reference
Hill, R. C., Griffiths, W. E., & Lim, G. C. (2018). Principles of econometrics . John Wiley & Sons.
Mankiw, N. G. (2016). Principles of economics . London: Cengage Learning.
