DOC PREVIEW
URI ECN 201 - Individual Choice and Interaction

This preview shows page 1 out of 4 pages.

Save
View full document
View full document
Premium Document
Do you want full access? Go Premium and unlock all 4 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 4 pages.
Access to all documents
Download any document
Ad free experience

Unformatted text preview:

ECN 201 1st Edition Lecture 2Outline of Last Lecture I. What is Economics?A. Types of economicsB. Steve Jobs video exampleII. What will we be studying?A. Market economyB. Invisible handC. Market failureOutline of Current Lecture I. Individual Choice – The Heart of EconomicsA. Principles 1 – 4II. Interaction and Individual ChoiceA. Principles 5 – 9III. Economy Wide Interaction A. Principles 10 – 12Current LectureSome Good Blogs and Other Sites to Follow Relating to this Class-Marginal Revolution-Freakonomics-The Conscience of a Liberal-The Economist-Greg Mankiw’s Blog-Worth Noting-Bureau of Labor Statistics-Bureau of Economic AnalysisWhat We’ll Be StudyingA set of principles for understandinga. The economics of how individuals make choicesb. How economies work through the interaction of individual choicesc. Economy-wide interactions1. Individual Choice – The Heart of EconomicsPrinciple 1-The most fundamental principal: Choices are necessary because resources are scarceResources and ScarcityThese 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.-Resource: anything that can be used to produce something else.Example: land, labor, capital (machinery, buildings, assets, money), human capital (skills a person can use)-Scarce: in short supply; a resource is scarce when there is not enough of the resource available to satisfy all the various ways a society wants to use it.Principle 2-The true cost of an item is its opportunity cost-Opportunity cost: what you must give up in order to get something.Example: going to college’s opportunity costs are money it costs, the money you could be earning while working instead, and time.-All costs are ultimately opportunity costs.A Woman’s Work-In 1900, only 6% of married women worked for pay outside the home-By 2005, the number was around 60%-Reasons for this changea) Changing attitudesb) Inventionc) The growing availability of home appliances, especially washing machinesStatistics-In 1945, government researchers clocked a farm wife as she did the weekly wash by hand. She spent 4 hours washing clothes, 4.5 hours ironing, and walked more than a mile.-Nowadays, a woman spends around 41 minutes washing, 1.75 hours ironing, and the distance to walk is reduced by 90 percent.Principle 3-“How much” is a decision at the margin-Marginal decision: decision made at the margin of an activity about whether to do a bit more or a bit less of that activity.Example: Should you spend another hour of your time studying? Hire one more worker? Spend one more dollar on games, etc?-Trade-of: you make a trade-off when you compare the costs with the benefits of doing something.-Trade-ofs at the margin: comparing the costs and benefits of doing a little bit more of an activity versus doing a little bit less (marginal benefit and marginal cost)-If the marginal cost is higher than the benefit, then you wouldn’t want to do the thing you’re considering.Principle 4-People usually respond to incentives, exploiting opportunities to make themselves better off-Incentive: anything that offers rewards to people who change their behavior.-People resopond to these incentives-Incentives Backfiring video (http://www.youtube.com/watch?v=W2hhIWbz0Ns) notes:- Dad gives his 3 year old daughter, Amanda, a pack of M&Ms if she uses the potty as an incentive- She started huslin him because after a while she realized that she could use the potty, stop mid-stream and get her reward, then use it again some more, get more M&Ms, then repeat- Incentives can backfire like they did in this case- In the United States, restaurant customers have the option of adding a tip to the restaurant bill. In much of Europe a tip is added automatically. Where would you expect waiters to be moreattentive?They’d be more attentive in the US because they have the tip as an incentive to be great waiters since it isn’t automatically included in their salary.-What prevents drivers from going too fast?- Life safety- Avoid accidents- No speeding ticket-What motivates you to brush your teeth every night?- Having nice teeth- No cavities- Avoid painful toothaches2. Interaction and Individual Choice-Interaction of choices – my choices affect your choices, and vice versa – is a feature of most economic situations.Principle 5-There are gains from trade.-Trade allows us to consume more than we otherwise could.Principle 6-Markets move toward equilibrium.-Equilibrium: an economic situation in which no individual would be better off doing something different.If others’ decisions change, we have to change ours too.-Aalsmeer Dutch Tulip Auction video clip- Tulips are auctioned off starting at high prices, and when the arrow moves indicating theprice goes down, the people in the room full of bidders press their buttons when they’rewilling to pay the price.-Why do lane speeds reach equilibrium quickly?Lane speeds reach equilibrium as people respond to incentives. You’ll rarely see a highway where there’s a lane that’s very stopped up next to another regular lane that has no traffic.Principle 7-Resources should be used efficiently to achieve society’s goals.-Efficient: taking all opportunities to make some people better off without making other people worse off.Example: Supermarket cashier desk – during hours where there are more customers, more cashiers will work so there will be enough to take care of all the customers.-Equity: a condition in which everyone gets his or her “fair share”.-Equity and efficiency are often at odds.-Equity trumps efficiency in disabled parking space offerings.Principle 8-Markets usually lead to efficiency-People normally take opportunities for mutual gainExample: A paper factory pollutes the river, which leads to market failure-Market failure -> the market outcome is inefficientWhy do markets fail?- Individual actions have side effects not taken into account by the market (externalities).Example: Pollution- One party prevents mutually beneficial trades from occurring in the attempt to capture agreater share of resources for itself.Example: Oil monopoly- Some goods cannot be efficiently managed by markets.Example: SmokingPrinciple 9-When markets don’t achieve efficiency, government intervention can improve society’swelfare.-Sometimes markets fail and need correction.3. Economy Wide InteractionPrinciple 10- One person’s spending is another


View Full Document
Download Individual Choice and Interaction
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Individual Choice and Interaction and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Individual Choice and Interaction 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?