Pyramid Scam Connected with Economic Principles

Topics: Ponzi scheme, Mindanao, Cagayan de Oro City Pages: 2 (512 words) Published: April 4, 2013
In the recent news, pyramid scam is one of the reports that gained attention from the public. Pyramid scam is a fraudulent scheme in which people are recruited to make payments to the person who recruited them while expecting to receive payments from the persons they recruit; when the number of new recruits fails to sustain the payment structure the scheme breakdowns with most of the members losing the money they put in. A group called Aman Group Philippines Incorporated (AGPI) operated this scheme and victimized people mainly in Pagadian City and has spread in other places like Dipolog City in Zamboanga del Norte, Iligan City, Cagayan De Oro City, and Kidapawan City in Cotabato. AGPI’s investors claimed that they can “double the money” that the participant provided and the participant can earn as much as 31% in 8 days or 100% in a month. No wonder why many people engage in this type of investment assuming that they can receive what exactly their recruiter promises to offer them. However, there are many speculations that the Aman Group is said to be a Ponzi scheme, a scam that pays returns to investors using other people’s investment money, the investment returns are just taken from the person’s own money or from money given from subsequent investors.

There are three principles of economics that can be applied in this issue. The first principle is from Mankiw’s principle, “People Face Tradeoffs” wherein to get one thing, you have to give up something else. In a networking business, a person being recruited will be encouraged to invest or allot his/her money in exchange for a larger payment in return. The second principle from Mankiw is “The Cost of Something is What You Give Up to Get It.”, that the decision-makers have to consider both the obvious and implicit costs of their actions. In engaging in a networking business, the participants assess the pros and cons, the expense, and outcome of their deal. The third principle that can be applied in a pyramid...
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