example- eating m and ms is the succession of units, and the one you are about to eat is the marginal unit (changes frequently)modern mainstream economics models choices as being made at the marginmarginal utility diminishes (decreases) b/c as you succeed the units, there are less units (less m and ms as you eat them)can loose satisfaction at different rateslinear- stop when marginal utility is 0 (run out of m and ms)DECISION RULE- consume until mu= 0Total satisfaction increases (each consumption of m and m is less than the one before it but it still adds to it; going up with a decreasing rate)When mu= 0, the tu starts to decrease; tu is maximized when mu= 0MU1= MU2= MU3= …=MUn= 0Constrained optimization- relaxing the no scarcity assumptionECON 205 1st Edition Lecture 1 Outline of Current Lecture I. Opportunity CostII. Overview of Micro/macroeconomicsIII. AssumptionsCurrent LectureI. Opportunity costThe best forgone optionThe price of the choice, what you gave up issue for everyone as individuals (time especially)II. Overview of micro/macroeconomicsMicroeconomics given scarcity, we have to make choices how are all of our choices coordinated?What can go wrong?Macroeconomics What determines the capacity of the economy?Why are we not always at full capacity?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.Why is there unemployment?How are national and global economies related?Role of government?III. Assumptions Assumption- Systematic abstraction from reality Weak- allow more reality, more likely to be relevant, much more complicatedStrong- hold reality at bay, simpler, more likely to be wrongRelaxing assumptions= going from strong to weak assumptionsExample: no scarcity scarcity Ceteris paribus- All other things being equal or held constant *the weaker the assumption, the stronger the model terms to know:rational- internally consistent way of thinking about the world utilty- satisfaction consume- extracting the satisfaction from somethinggoods and services- what we consume, what we get the satisfaction from goods- can be stored; services- cant be Maintained assumptions- foundation of the modelutility maximization know preference ordering rational assumptions to be relaxed no scarcity no production necessary no future no risk/uncertainty no interdependence * rational individuals consume goods and services to maximize utilityIV. Relaxing the no scarcity assumptionV. diminishing marginal utility in a succession of units, the marginal unit is the one under consideration - example- eating m and ms is the succession of units, and the one you are about to eat is the marginal unit (changes frequently)- modern mainstream economics models choices as being made at the margin - marginal utility diminishes (decreases) b/c as you succeed the units, there are less units (less m and ms as you eat them)- can loose satisfaction at different rates - linear- stop when marginal utility is 0 (run out of m and ms) DECISION RULE- consume until mu= 0 - Total satisfaction increases (each consumption of m and m is less than the one before it but it still adds to it; going up with a decreasing rate)- When mu= 0, the tu starts to decrease; tu is maximized when mu= 0 - MU1= MU2= MU3= …=MUn= 0 Constrained optimization- relaxing the no scarcity