Rational economic man – Homo Economicus

Rational economic man – Homo Economicus

Homo Economicus is a hypothetical concept that humans are: Self-interested Know what they want Make rational choices to maximise their utility. These choices are based on concept of marginal utility. This concept of a rational economic man is an important cornerstone of neo-classical economic theory. It creates a framework to model how consumers and firms will respond to different situations. How ‘rational economic…

Optimal name of companies and search engine positions

Optimal name of companies and search engine positions

I saw this skip for hire and it made me nostalgic for a pre-internet era? Why. Before the internet, most people would order a skip by looking through the Yellow Pages (a telephone directory for companies – ordered by type of business. For something like ‘skip hire’ – It’s the kind of business where you didn’t have much information to go on. There are certainly no reviews ready to read. It was a case of ringing up companies on a landline and…

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Economics of Jeremy Corbyn

An economic evaluation of the Labour Manifesto? Most significant element of Jeremey Corbyn’s Labour Party manifesto include Higher income tax on top 10% of earners Rail renationalisation Freezing pension retirement age Abolition of tuition fees promise of 30 hours’ free childcare, 10,000 more police officers What I think: Higher taxes on the rich. As a high income earner, I support the idea of higher marginal income taxes. There is diminishing marginal utility of money over £70,000, I would rather contribute to better public services. Abolition of tuition fees. I don’t support this. It…

Life-Cycle Hypothesis

Life-Cycle Hypothesis

The Life-cycle hypothesis was developed by Franco Modigliani in 1957. The theory states that individuals seek to smooth consumption over the course of a lifetime. Graph shows individuals save from 20 to 65 As a student, it is rational to borrow to fund education. Then during your working life, you pay off student loans and begin saving for your retirement. This saving during working life enables you to maintain similar levels of income during your retirement. It suggests wealth will build up…

Sunk Cost Fallacy

Sunk Cost Fallacy

The sunk cost fallacy is when we continue an action because of our past decisions (time, money, resources) rather than a rational choice of what will maximise our utility at this present time. For example, because we order a big meal and have paid for it, we feel a pressure to eat all the food. “The sunk cost effect is manifested in a greater tendency to continue an endeavor once an investment in money, effort, or time has been made.” Hal Arkes and Catherine Blumer. (1985), The psychology of sunk costs….

Price of Car Parking in City Centres

Price of Car Parking in City Centres

On a recent visit to New York, my friends took me to a popular part of Queens to an Indian restaurant. Because it is a popular area it was very difficult to find a car parking space. We ended up driving round in circles for 15 minutes before a space finally became available. When we finally parked, I was surprised to see there was no charge for parking in this busy area. Diagram showing Excess Demand…

Happiness economics

Happiness economics

The economics of happiness seeks to relate economic decisions to a wider measure of welfare than traditional measures of income and wealth. Happiness economics attempts to evaluate a wider range of factors affecting well-being, quality of life and self-reported levels happiness. There are now several measures of happiness, such as Gross Domestic Happiness. (GDH) Countries such as Bhutan, France and UK have, to varying degrees, started using ‘happiness indexes’ in measuring economic performance. Happiness economics challenges the assumption of neo-classical economics which…