ECONOM 1014 1st Edition Lecture 3 Outline of Current Lecture I. First Economic ModelCurrent Lecture First Economic Model- Good Benefit Analysis- Making Good Decisions- Needs vs Wantso Identifying what’s a need is objective, Econ works with wants, using order of importanceUnlimited Wants-random wants the class called out1. Car 6. Food 11. Ski Resort2. Private jets 7. 5-star chef 12. Zoo3. Train 8. Restaurant Meals 13. Island4. Yacht 9. House 14. Sports Team5. Helicopter 10. Vacation Homes 15. English ButlerLimited Resources-the reasons why you can’t obtain unlimited wants1. Skills2. Money3. Space4. TimeAssumptions1. People are rational (thought process behind making decisions) logical consistent methodto make decisions.2. Goal is to make yourself as happy as possible. Maximize happiness, *same as welfare and utility Scarcity means wants exceeds resources.o Forced to choose, make choices about what you “want”o Everything has a cost. (Price) Opportunity Costs-What do we have to give up to get what we wantEx. Should I Go To College?Pros=$80,000* Cons=$40,000*$ of Marginal benefit $ of marginal costs1. More earnings 1. Losing some job opps2. More satisfying jobs 2. Psychological costs3. Social prestige 3. Tuition and fees4. More job stability 4. Value of Time (lost earnings)5. Fringe benefits 5. Travel costs6. College experience 6. Room and Board7. Gain in knowledge*-arbitrary numbers picked by audience to give value to the section$80,000 (marginal benefit)-$40,000 (marginal cost) =$40,000 expected marginal benefitUtils of utility-econ term-$ of