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Principles of Economics - Research Paper Example
Finance & Accounting
Pages 4 (1004 words)
The paper tells that an increase or decrease in price of the drugs therefore has little or no effect on the quantity demanded by an individual. The increase in price of the drugs thus affects all the sectors of healthcare industry such as patients and private insurers…
Based on this research economics is about scarcity and choice. It is assumed that all human beings are rational thinkers hence would always choose to consume products that would give them maximum satisfaction or utility. Mankiw argues that rational people ‘systematically and purposefully do the best to achieve objectives given available opportunity.’ Given a choice among alternatives and with scarce resources, one would evaluate the benefits and costs of consuming an extra unit of a product and would only take a decision only if marginal benefit is greater than marginal cost. In this case, to solve the alcohol abuse problem, one has to consider marginal benefits and marginal costs derived from consuming an extra unit of alcohol and since excessive drinking has more costs than benefits, one would refrain from alcohol. The opportunity cost foregone by choosing to abuse alcohol is too high compared to satisfaction derived; money spent on alcohol can do many other things such as feeding the family, education for children, and investments among others. Besides, the person may have health problems thus adding to the costs. By considering all these factors, a rational person would refrain from alcohol abuse. Heyne acknowledges the role played by incentives in directing behavior. For him, rational people usually respond to incentives or are induced to act by them. Assuming alcohol abusers are rational, imposing taxes on alcohol substances would eliminate the problem. ...
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