Basic Economics Principles:
· How people make decisions
· How people interact
· How people aggregates work
1. People force tradeoffs (TANSTAAFL)
a. What is a cost?
· If we want clean water, it’s going to require resources.
· Notions of economics efficiency. How to make the pie as big as possible and how to make it equally distributed.
· Truly free goods means you can have as much as yo want of something without a tradeoff. Using no resources.
· Is it possibly to spend too much time trying to get an A in this class? Yes it is possible, but there will be a huge tradeoff because you will not have time for nothing else.
· When we do something we have to endure a cost.
· What is a cost?
o Anything that consumes resources.
2. Opportunity Cost
a. Applications: Breaking windows
i. Broken Window Fallacy: Even in September 11 or in Japan’s tsunami people say the upside that economic activity will start and GDP will increase.
ii. However what will happen if the roof wouldn’t have blown away? Well now the money that was targeted to another expense like the driveway so all of those people now will not have that economic activity.
iii. So the net change is zero.
iv. What is the cost of getting my roof blown off?
1. $1000.00 USD. We are poor by the amount of the damage.
b. Remain in your bed for another hour.
c. Opportunity Cost: Is the net value of you next best opportunity.
i. Suppose you win a Bruce Ticket. No resale VS. Barry Manillow, Tickets cost $40. Your pleasure out of Barry is WTP $50. SO $50 minus $40 will be $10.
ii. What did I sacrifice to see Bruce? What is the opportunity cost of Bruce?
1. $10!!!
3. Sunk Cost
4. Marginal Analysis
5. People Respond to Encounters
No comments:
Post a Comment