ECON 100 1st Edition Lecture 3Outline of Last Lecture I. EconomicsA. Microeconomics vs. MacroeconomicsII. Two Big Economic QuestionsA. What, how, and for whom?1. Factors of ProductionB. Self-Interest vs. Social-Interest1. Efficiency2. EquityOutline of Current Lecture I. Four Topics That Illustrate Tension Between Self- and Social-InterestA. GlobalizationB. Information Age MonopoliesC. Climate Change D. Economic InstabilityII. 6 Key Ideas Define The Economic Way of ThinkingIII. Economics As a Social ScienceA. Economic ModelsIV. Economics As a Policy ToolCurrent Lecture- Four Topics That Illustrate Tension Between Self- and Social-Interest1. Globalization – the expansion of international trade, borrowing and lending, and investment- Self-interest of consumers: low cost goods/services produced in other countries- Self-interest of multinational firms: produce in low-cost regions, sell in high-cost regions2. Information Age Monopolies3. Climate Change - 2/3 of the Carbon emissions from USA, Russia, EU, China, and India- It is in our self-interest to use electricity and gasoline 4. Economic Instability - 1993-2007 incomes in the USA increased 30%These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- August 2007  financial stress- Lending and borrowing choices of banks and individuals were made in self-interest- Six Key Ideas Define The Economic Way Of Thinking1. A choice is a trade-off: an exchange, giving up one thing to get something else2. People make rational choices by comparing benefits/costs - A rational choice achieves the greatest benefit over cost for the person making the choice  answers the question what goods/services3. Benefit is what you gain from something- Determined by preferences (what a person likes/dislikes)- The most a person is willing to give up for something else4. Cost is what you must give up to get something - Opportunity cost = highest valued alternative that must be given up- The things you can’t afford to buy and the things you can’t do with your time5. Most choices are “how much” choices made at the margin- To make a choice at the margin, evaluate the consequences of making incremental changes in the use of your time- Benefit from an increase in an activity  Marginal Benefit (MB)- Opportunity cost of an increase in an activity  Marginal Cost (MC)- Marginal benefit > marginal cost = rational choice  do more of that activity 6. Choices respond to incentives- Change in marginal cost/benefit  change in incentives  change in choice made- Predict how choices change by looking at changes in incentives- Incentives = key to reconciling self- and social-interest - Economics As a Social Science- How the economic world works- Positive Statement – what is; can be tested by checking it against the facts- Normative Statement – what ought to be; expresses an opinion and cannot be tested (policy goals) Economists test economic models (description of some aspect of the economic world that includes only those features that are needed for the purpose at hand  Compare predictions and facts; also use natural and economic experiments and statistical investigations - Economics As a Policy Tool- Economics – toolkit for advising government, businesses, and individuals- Policy questions involve positive and normative- Normative part is the goal  economists can’t help For a given goal, economists provide a method of evaluating alternative solutions – comparing marginal