Principles of Economics
The behavior of the economy plays a crucial role since it reflects the manner in which people behaves. There are different principles that people use to make decisions regarding what they consume which ends up affecting the economy. However, as they make those decisions, they have to take into consideration the aspects of efficiency and equity to achieve an overall economic well-being. The article titled “Gas prices are falling fast” by CNN journalist Chris Isidore captures the reality on the ways in which the economy works thus the reason for selecting.
Summary of the article
According to Isidore (2017), the people in the US expected the gas prices to rise because it is summer period when people drive more causing the demand to rise. However, the contrary is experienced during this season and this is because of the increase in supply. The fact that there is a lot of oil available ended up affecting the gasoline prices which has reduced to as low as $1.96 per gallon (Isidore, 2017). It is the reason the changes in the oil prices turned out to be a surprise to people because for the last 12 years, they had never experienced such changes in prices.
Connection to the principles
The article has rejected the principle of tradeoffs whereby people a person has to make the decision of trading off one of their goals against another. The reduction on the oil prices has made travelling easy for the people during the summer period meaning that they do not have to tradeoff travelling using their cars because of the high prices. It also rejects the principle of costs depending on the amount of goods that people are willing and ready to give up (Mankiw, 2014). People do not have to compare the oil prices because in all the states in the US, there is a reduction making life easy and better in terms of decision making. The author’s article, however, supports the idea of the rational thinking at the margin. A person has to decide whether to travel more because the prices of oil are already lowered or to save the money. It is important for people to know the additional benefits of the oil prices and how it will affect their consumption decisions.
The article also supports the principle of incentives whereby people make decisions to consume based on the prices. In this case, the change in oil costs is expected to change the behavior of people towards oil consumption. The level at which they can travel is no longer limited because oil is already available and the prices are fair to everyone. The author rejects the idea of trading making everyone better off especially when thinking regarding competition. Another important principle that has been supported is regarding markets being the best place to organize every economic activity (Mankiw, 2014). It elaborates more on the planning theory because as the prices of oil go down, people have to plan and organize their activity in a way that would benefit the economy. At the same time, the authors have supported the principle regarding governments improving the outcomes of the market and the principles regarding the standard of living of people in a country depending on their ability to produce services and goods.
In conclusion, the economy of a nation is determined by several factors. The principles that people apply regarding their consumption habits have the power to affect the overall economy. Sidore’s article have both supported and rejected the 10 principles of economy proposed by Mankiw. Nonetheless, he has provided an insight on the ways in which the markets operate which determines people’s expectations that ends up affecting their consumption decisions.
Isidore, G. (2017, June 22). Gas prices are falling fast. CNN. http://money.cnn.com/2017/06/21/news/economy/low-gas-prices/index.html
Mankiw, N. (2014). Ten principles of economics. Retrieved from http://www.masterhdfs.org/masterHDFS/wp-content/uploads/2014/05/NGrrgory-Mankiw-Principles-of-Microeconomics-Thomson-Lrarning1997-1997-1.pdf