Question

Do the four core economic principles hold in the real world?

Why or why not?

You can give some examples where they hold and where they do no hold.

If they do not hold, why we need these principles?

Answer 1

Marginal principle and principle of opportunity cost hold true in the real wold, because people compare different alternative as well as they also identify the marginal benefits and marginal costs. The principle related to rational decision apply up to a certain level, because people are also driven by sentiments, emotions and what others are doing. So, this principle is applied in a limited capacity. The fourth principle is equi-marginal principle that is not applied in the short run, because capital cannot be changed in the short run. But, in the long run, equi-marginal principle can be applied.

It can be understood by examples as well. When  a person starts consuming ice-cream, then he or she will consume as long as marginal benefits or utility drawn is more than or equal to the marginal cost. Afterward, the consumption is stopped. It is also applied in the firm setting, where goods are produced at a level, where MR = MC. In another example, a person is contemplating in either going to work or watching a movie. If he or she opts for going to work, then entertainment foregone from movie, is the opportunity cost.  

In short term, firm can not change capital as a factor of production. Hence, capital cannot be changed in the short run to get optimum solution of MUL/PL equal to MUK/PK in the short run. But, in the long run, it can be done.

We need these principles, because it helps individuals and managers guide what they should do in ideal conditions. Afterwards, managers or anybody can tweak it to make the best decision for the benefit of the organization or oneself.