Question

Consider the following cases. Clarify the situation and explain which of the "Ten Principles" they are mostly talking about and why? (In these cases you should think about more than one principle) I • Chris has a final exam tomorrow. He still needs to focus on the final chapters of the book to get the full grade in order to be ranked first in the class. On the other hand, he has been invited to his intimate friend's goodbye party which is tonight. Chris has a Toyota Camry, the engine of which needs to be repaired. He has to spend 1000$ to repair it. On the other hand, the repairman offers him that he likes Chris's broken car and wants to pay 4000$ to buy it in this condition. However, Chris can sell the repaired car at the price of 4900$ in a well-organized market through a confidential broker company which assures him that his check will be cashed immediately.

Answer 1

The 10 Principles discussed in the above examples are as follows:

1) People Face Tradeoffs :

This principle points out that in order to get one, we might have to give up on something else. There is choice and one should choose one and let go the other. For example: Leisure Time and Study Time.

In the given situation, Chris has final test and he still needs to focus on chapters to get first in his class.

On the other hand he is invited to his intimate friend's goodbye party tonight.

This is the example of trade-off. If Chris attends the party, he forgoes the opportunity to get first in class. If he choose to study, he cannot attend the party.

2) Cost of something is what you give up to get it :

This can be explained by mentioning opportunity cost.

Opportunity cost is the cost of next best alternative forgone.

Example: Spending money on car which if invested in bank would fetch interest. The interest is the opportunity forgone if you purchase a car.

In this example :

Chris has the option to repair the Camry @ $1000. If he repairs he can sell the same for $4900.

However, the repairman offers to buy the car @ $4000.

Now the cost of car if chris decides to sell it, is $4900 and the cost of car if Chris decides to repair is $4000 as it is the next best alternative forgone.