In recent years, airlines have become adept at charging customers for ‘extra services’. These extra services include:
Seats with more leg room.
Choosing a seat earlier
Paying a penalty to check in at airport (budget airlines)
Priority boarding
Checked in luggage (budget airlines)
Meals
debit /credit card surcharges (Ryanair)
Economic concepts involved
Price discrimination/price targeting – charging different prices for relatively similar goods
Allocative efficiency – charging a price equal to…
Definition of knowledge economy
The sector of the economy which is increasingly based on knowledge-intensive activities, creating a greater reliance on intellectual capital rather than physical inputs.
The OECD state the knowledge economy is associated with:
High-tech manufacturing (computer, electronics, aerospace),
Service sector industries, such as education health care and software design
Business services such as insurance, information and communications.
In traditional models of economic activity, the main factors of production are Land, labour, capital, entrepreneur. A Knowledge-based economy is important for widening the scope of labour from producing goods on an…
Following on from yesterday’s post. Is it rational to pay £1 for a bottle of water?
This photo was taken at Stanstead Airport. You could easily take a bottle without paying. No-one would notice at all. It’s not even clear it would be a crime. Therefore, is it rational to pay?
One logic is to consider the rational choice model as proposed by…
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…
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…
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…
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…
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….
