02 - January 9, 2009 Economist agents are rational: their...

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January 9, 2009 Economist agents are rational : their objective is to make benefits through certain goals Example : cost-benefit principle o One listens to a CD, but there are 2 songs that one hates. However, one is comfortably seated and does not want to stand up and skip the songs o Action : getting off the chair to skip the tracks o Benefit : skip the unwanted songs * quantized ($): how much would one pay someone to do it? - it is the maximum amount paid to someone to do the action o Cost : getting off the chair - lost of comfort * quantized ($): the minimum amount that someone would have to pay you to do it o Benefit > cost - do the action Benefit < cost - do not do the action Opportunity cost : of an action is the value of the next best alternative foregone when one takes the action o It is the true cost of an action that is measured by what one have to give up to do it o Example : Typical situation Paul wants to go to next week football game. Explicit cost
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This note was uploaded on 03/30/2009 for the course ECON 1 taught by Professor Tang during the Winter '08 term at UCSD.

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02 - January 9, 2009 Economist agents are rational: their...

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