Chapter 1 - Introduction

Chapter 1 - Introduction - Chapter 1 Thinking Like an...

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Chapter 1 Thinking Like an Economist
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Vocabulary Scarcity : a situation in which there is not enough of something Principle : a basic rule Surplus : an amount of something that is more than what is needed or used; excess Opportunity : a chance to do something Pitfall : a problem or difficulty that is likely to happen in a particular job or activity Trade-off : a balance between two opposing things, that you are willing to accept in order to achieve something
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Vocabulary Implicit: suggested or understood without being stated directly Explicit : expressed in a way that is very clear and direct Marginal : relating to a change in cost, value etc. when one more thing is produced, one more dollar is earned etc. Incentive : something that encourages you to work harder, start a new activity, etc. Naturalism : a style of art or literature which tries to show the world and people exactly as they are
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Learning Objectives: 1. The Scarcity Principle : having more of any good thing necessarily requires having less of something else 2. The Cost-Benefit Principle : an action should be taken if and only if its benefit is at least as great as its costs 3. The Incentive Principle : examine people's incentives to predict their behavior 4. Three pitfalls in reasoning 1. Measuring costs and benefits as proportions instead of as dollar amounts 2. Ignoring implicit costs 3. Failing to weigh costs and benefits at the margin
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The Scarcity Principle: 资资资资资资资 The Scarcity Principle: Unlimited wants and limited resources means having more of one good means having less of another. Which of the following is scarce ? Air fresh air housing land Panda Professors in Economics Universities Rice at XMU student cafe Price and scarcity
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The Scarcity Principle: 资资资资资资资
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The Scarcity Principle: Examples
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“Rationality” assumption: We assume people are “rational”, meaning that they have well-defined goals and try to fulfill them as best they can
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The Cost-Benefit Principle Take an action if and only if the extra benefits are at least as great as the extra costs Take an action if and only if the marginal benefits are at least as great as the marginal costs Costs and benefits are not just money
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Cost – Benefit Example Walk to town to save $10 on an item? Benefits are clear Costs are harder to define Hypothetical auction Would you walk to town if someone paid you $9? If you would walk to town for less than $10, you gain from buying the item in town Note: Different people value costs and benefits of an action differently.
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Cost – Benefit Principle Examples 1 You speed on the way to work but not on the way to school. 2 You clip grocery coupons but your friends do not. 3 Cheating in the exam 4 Enter a four-year university bachelor degree program 5 Eating in a on-campus dining hall or a luxury restaurant?
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Cost – Benefit Principle: Summary: Take an action if and only if the marginal benefits >= marginal costs
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Economic Surplus Total Benefit of an action minus its total costs
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Economic Surplus
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