Principles of Economics Essay

500 Words2 Pages
Principles of Economics Suggest how an economist would approach the problem of alcohol abuse. Provide two (2) possible solutions to this problem. Include the four (4) elements of the economic way of thinking in your analysis. When an economist approaches the problem of alcohol abuse, they will use the four elements of the economic way of thinking in their analysis. When it comes to problems and decision making, there are four elements of the economic way of thinking which include the following: using assumptions to simplify, ceteris paribus, thinking at the margin, and rational people responding to incentives. Economists use assumptions to make things simpler, and economists focus attention on what really matters. Simplifying assumptions can make a difference; therefore, one must carefully think whether a simplifying assumption is truly harmless or not. Economist’s analysis involves variables and how they affect one another. In the case with alcohol abuse, the alcohol would be the variable and effects on one another would be another variable. Economists are interested in exploring relationships between two variables, which measure something that take on different values. With regards to thinking at the margin, economists consider how a small change in one variable affects another variable and what impact that has on people’s decision making. In the case of alcohol abuse, economists will look at the costs associated with alcohol abuse, and they will also look at the costs associated with alcohol abuse. Lastly, rational people respond to incentives. With this element of the economic way of thinking, a key assumption of most economic analysis is that people act rationally, meaning they act in their own self- interest. According to a Scottish philosopher, Adam Smith, when the benefit from doing something changes, people will change their behavior to get the benefit

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