Lecture #16 "Marginal Costs/ The Unintended Consequences" (10/07/2011)

·       Interesting lecture  

EcEconomics Decisions- Is not all in!

·         Marginal Costs

·         “Cassie is unselfish person”

o   Trust level.

o   What is the good?

o   What does it mean at the margin? Always?

o   Does Health Care exist? “Health Care for every American.” – NO MEANING  

o   Do not say “I love you” too much because it will decrease the marginal vale of every single I love you. Once a month and their marginal value will be very high.

·         Teacher VS. Athletes (“Water” and “Diamond” Paradox)

o   Total value of water vales more than the total value of diamonds.

o   Nothing wrong with the priorities but we do not understand margins.

o   At the margin the athletes are more important.

o   Why will it make sense to pay more to the IP than the eye glasses?

o   Key Economic insight: Is not oil but what oil can do for you. Is not what the dengue killer but what they can do for you? (Test material)

·         Value arises from human interpretation, not from objective measures.

·         Sunk Costs (Value)

o   No matter what you do or change your behavior so they cannot recover.

o   Sunk and gone forever

o   A sunk cost is a genuine cost made in the past.

·         Human Acts with Purpose

·          People respond to incentives

o   When the benefits and costs of some action change, people’s behavior will change.

o   That is very crucial!

·         “Law of Unintended Consequences”

o   1970’s – Make cars more safety. Pass a law to make every car have a seatbelt.

§  Intention of the law was to prevent you death by not flying out of the car.

§  Unintended (maybe people will don’t care to drive nicely; make it more unsafe)

§  It made us UNSAFE! Like pedestrians and bicycles are unsafe thanks to the aggressive driving. 

Rizzo

-Daniel Gaona

Lecture #15 "The Broken Window Fallacy" (10/05/2011)

Broken Windows Fallacy

3 Problems with the “Its stimulations” nation

1.       I didn’t choose the roof to begin with

2.       We lose the value of the RESOURCES used to repair roof.

3.       But…What if the roof was unemployed?” AUS?

a.       I.E. Ignore the $$, resources matter and..

·         Before: $1,000 (Roof)

·         After: $0 (Roof)

·         Destruction does not cause prosperity.

·         Government giving jobs

o   Raising taxes today

o   Raising taxes tomorrow

o   You will have job loses tomorrow.  

·         The insurance paid for the roof, so the money was just seating there and it just went to economy and created jobs.

·         Isn’t that stimulating?

·         Remember to ignore the money, resources matter.

·         Jobs are not a benefit, jobs are a cost.

o   Benefit: I get an income to pay for the goods and services that I want.

o   It will be better if I get all of those benefits without working.

o   What’s the direction of the money? If jobs were a benefit Ill have give money to Rochester to sand there.

·         What about WWII?

o   Massive unemployment before WWII. (1 out of 8 people had work)

o   How can all those millions of jobs creating bombs, tanks and more not be stimulating?

§  You can’t eat a bomb.

§  Low average consumption level.

§  How did the ability of consume all those normal things changed during WWII.

Cost is subjective

·         Paying attention to class for the last 10 minutes has the cost of not thinking of my nap.

·         Paying attention to class makes you not know what will if feel to think about nap so you do not know what you are giving up.

Marginal Analysis

·         Water – diamond paradox

o   Something really high in use has a very low value.

·         Reconciliation:

o   Rochester – New York Flight

o    200 seat plan with a total cost of $100,000.

o   What is the average cost: $500

o   Why will airlines let you in the plane for a $100 ticket?

o   What is the cost of getting you in the plane?

o   Conditional to the situation: What is the cost of the next person?

o   Your Marginal Cost is the change in your cost from taking your action.

o   Marginal Benefit is the benefit from taking action. 

Lecture #14 "Opportunity Cost" (10/03/2011)

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  

EWOT Goggles #4 - "Is class participation good or bad? (Economically speaking)" (10/02/2011)

          Okay this week I won't make my EWOT that long since I will try to explain my observation as short as I can. I have observe something since I got to college in the United States. I take four classes this semester and all of them are above 100 students. This means that every class I am in takes place in auditrious or big room where 150 students might seat. My longest class is just 1 hour and 10 minutes but the other 3 are 50 minute lectures. It was hard for me to picture the idea that you do not have your 20 person class like in high school or college in Mexico where you can ask a lot of things to the professor and its okay. Moreover the classes are shorter so information comes faster. Now when I was young I was always told that participation is encourage and is good for not only you but the class as a whole since another student might have the question. I truly support Adam Smith in the idea that self-interested people are guided bu these invisible hand that ends up helping the community but in this scenario I'll have to go with Darwin. Now that I am in college I have seen participation as something not good (economically speaking). I had a math lecture this past week which talk about limits. There is a student in my class that sits in the front row and always ask things that make the professor stop and try to re explain. Last class I counted exactly 10 minutes of the class wasted on trying to fully explain this question. Now I have made calculations. Tuition is $40,000 thousand dollars per year which means is $20,000 USD per semester and if you divide that by four classes, which is the average, you pay $5,000 USD per class. Now imagine you have the class for 16 weeks which is 4 months you will pay $312.50 USD per week of that class. I take my math class twice per week so $156.25 is the value of every lecture. So I am basically paying $1.42 for every minute in that lecture and by that question I lost almost $15 USD. In the long run if this happens once a week by adding students participatiion or so you could be loosing more than $200 USD which were not targeted for you since you understood better. My conclusion is that participation in lecture is actually economically speaking bad for students. Questions should be ask in office hours or to the TA's in recitations. I might making a wrong assumption? Or am I not considering other factors?
This has been my personal observation of the economical view of participation in lectures....

Reading Analysis #4 "Economics of Happiness - Debate" (10/02/2011)

A)
This debate was extremely interesting for me I conclude this since I saw the tittle. Through all of our lives many people preach you about the idea of being happy is more important than having money and that money will never be ably to buy happiness. The truth is that I and I bet many other got to meet many rich and unhappy people as well as poor and happy people. So that makes you believe in this idea you parents might have though you. Now today was the day of listening to this idea being debated by two great economics and based on data not just theory.
         When Justin started the debate he went straight to a introduction saying in a very organized way how we has going to show his data and conclusions. It was intuitive for that money does have a relationship and correlation between the amount of money you have and your happiness. Justin showed us how the rich countries had a higher level of happiness and within does countries rich communities were happier that poor. I was truly impressed with the data he prepared to prove that in fact money plays a role in happiness.
        Robert or better called Bob comes into action to the debate in a slower way. Showing that he is not based in facts but more in theories. First he mention Smith's theory that says that self-interested people are guided by an invisible hand that will later on help the community and then contradicts this idea with Darwin's saying that self benefits will bring disadvantages to the community. A great example of this is the mansion or party example since if you have a very expensive party or big mansion what you are doing is setting the standards and making the community look poorer. So I saw this last examples counter-intuitive since I saw that having a bigger mansion will not make a neighbor look poorer but will provoke for him to more ambitious not to necessarily have a bigger mansion but increase its absolute income. After reviewing this video I can saw I have evidence to prove that money and happiness have a great correlation (0.8) however factors like your relative income, place where you live and your social position also matters and makes a difference in this correlation. Happiness doesn't fall 100% in the dependence of income becuase physiologist express big percentage of that falls in genes but the economists might have the other half. Remember that graphs are express in a logarithmic scale so it is no tthe increase of 10 units makes a difference but the increase of 10% of what we have without rejecting the existence of exceptions like some Muslims countries.

B)

1. A theorist economist like Robert doesn't based himself that much with empirical data (Robert never show a graph or statistic in the whole debate) so doesn't that type of economists the one that provoke the true uncertainty in economics? If so, how can a theorist economist prove he is right without any data to back him up or time shall prove his is right like his statement that in 100 years people will see Charles Darwin as the great economist. 
2. As one of the public member ask I want to retake the question. What are the terminology used for the measurements of happiness since the graphs used were based in a a variety of countries and cultures? I lived in China and I know happiness there is not the same as in Mexico so how can this factors be ignore so the data cant lose its level of certainty. 
3. It is establish than when income increases the level of happiness increases as well. Now if your absolute income increases means you got a proportion or a better job perhaps. Wouldn't that increase the level of stress rather than decrease it. (People get better jobs and get paid a lot more money than before and they move their kids to better school. Kids they now see once a month because of their high stress and working hours. Is that person more happy?) More money might mean more responsibility and more stress...

C)

This was a great video and debate that showed not only the difference between these beliefs but the capacity of an empirical economists to debate against a theorist economist. It has been a video that I was hopping I could see one time in my life since I already doubt about the correlation beween income and happiness. This video shows us the ability to use data. 10 economist can see the same data but maybe only1 will see beyond the data and give an explanation to what happens. Justin saw that in Japan for example and he have an example for that. Now I just have a funny quote for those who still believe money does not buy happiness. "Money can't buy happiness, but I rather cry in a Ferrari"

Daniel Gaona