In economics, we are often presented with the benchmark of a perfectly competitive market, in which a large number of buyers and sellers trade homogenous products with perfect knowledge regarding price and utility. The only feature Camberwell Sunday Market shares with this benchmark is a large number of buyers and sellers.
Sunk costs are one of the first things any economics student learns about. For the uninitiated, a sunk cost is defined as ‘a cost that is already incurred and cannot be recovered’. Specifically, it is taught that any rational decision maker should not take sunk costs into account when making decisions. This might seem like …
At the heart of economics lies the fundamental problem of scarcity. As Lionel Robbins reflected, economics is a science that studies ‘human behaviour as a relationship between ends and scarce means which have alternative uses.’ The recurring challenges faced by economists, consumers, businesses – in fact, everyone – is how to allocate finite resources amongst infinite needs and wants.
The recent terrorist attacks in Kenya and Pakistan have reinvigorated the worldwide fear of extremist violence. The far-reaching effects of these tragic events have substantial impacts on the way people choose to live their lives. Terrorism induces fear. This natural human reaction causes subjective beliefs and reality to diverge. Exploring the consequences of terrorism is a challenge for economists, especially with regard to the effects on rationality, consumption and economic behaviour.
With recent technological innovation opening doorways to new methods of social interaction, the world’s ocean is radically becoming larger and larger. And I do not use ‘ocean’ in the literal sense, but rather metaphorically, to classify the pool of potential mates for any particular individual. Access to a larger pool of candidates comes with it a greater difficulty and added pressure on finding “the one”.
This article forms part of an ongoing series looking at economic issues as Australia heads into the Federal Election. More coverage can be found on the Election 2013 page of ESSA’s website.
The application of economic principles to election voting is a relatively simple process. A completely rational individual would simply vote for the political party that would best enhance their personal utility. If everyone did this, in theory at least, the party whose vision and policies best represented the country would win at an election.
Historically, the term ‘rationality’ has been ascribed various meanings within the sphere of economics. Typically, rationality has been expressed in terms of the idea that consumers attempt to maximise utility by arriving at an optimal decision in light of a complete set of information relating to the market in which they operate.
That is, the rational person of neoclassical economics opts for the decision that is subjectively best for that person in terms of a given utility function. Consequently, neoclassical reasoning relies heavily on artificial factual assumptions such as perfect information, rather than accepting the reality of limited information and cognitive capacity in making any given decision.
In microeconomic theory, consumers and producers make up two halves of a productive economy. In such a model, even traditionally marginalised groups can be categorised as consumers or producers, or both.
Specifically, the homeless, who typically have very limited economic productivity and hence income flow, should be thought of as consumers with their own preferences and utilities. This perspective is essential for communities and NGOs when determining financial strategies to minimise homelessness. Using basic consumer theory, I will compare the results of cash and in-kind transfers given to the homeless.