Principles of Economics
Sharonda Thorpe, RN, BSN
Professor Sarah Uhimchuk
Principles of Economics-ECO 100
January 29, 2012

Suggest how an economist would approach the problem of alcohol abuse. Provide two (2) possible solutions to this problem. Include the four (4) elements of the economic way of thinking in your analysis. To suggest how an economist would approach the problem of alcohol abuse, one needs to understand the elements of the economic way of thinking. Four elements are: principle of opportunity cost, which means what you sacrifice to get something. Marginal principle is another element, which includes marginal benefits that result from a small increase in activity and marginal cost, which is the additional cost resulting from a small increase in activity. The principle of voluntary exchange is another element of the economic way of thinking, which is based on the notion that people act in their own self-interest. People won’t exchange one thing for another unless the trade off makes them better off. A forth element would be the principle of diminishing returns which means at a certain point (called the point of diminishing returns), additional input to a system of production will produce less and less output. O”Sullivan (2012). In other words, Scarcity: where economists study situations where needs or wants exceed means. Therefore, people have to make choices. Rationality is assumed to guide people's choices or decisions. They systematically gauge all pros (benefit) and cons (cost) of all alternatives or options they are facing when deciding. Preferences: people are equipped with fixed and given preferences that allow them to assign utilities to all options, and to choose the option that maximizes (net) utility. Restrictions: people face constrains that they cannot change themselves, and will