Chapter1_s

Chapter1_s - Chapter1 Chapter1 ThinkingLikeanEconomist...

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Chapter 1 Chapter 1 Thinking Like an Economist Thinking Like an Economist
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Learning Objectives: Learning Objectives: Three Principles Three  Pitfalls 1. The  Scarcity Principle 2. The  Cost-Benefit Principle 3. The  Incentive Principle 1. Measuring costs and benefits as  proportions   2. Ignoring implicit costs 3. Failing to weigh at the margin
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The Scarcity Principle The Scarcity Principle Economics: the study of choices and results under  scarcity.  The Scarcity Principle: Unlimited wants and limited  resources imply that having more of one good  means having less of another.  Also called the No-Free-Lunch Principle.  
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The Cost-Benefit Principle The Cost-Benefit Principle The Cost-Benefit Principle: Take an action if and  only if the extra  benefits are at least as great as  the extra  costs Example: You are selling your 1996 Mustang.  You have  already spent $1000 on repairs. At the last minute, the  transmission dies.  You can pay $600 to have it  repaired, or sell the car  as is.  Blue book value is $6500  if transmission works, $5700 if it doesn t. Should you  have the transmission repaired? Costs and benefits are not just money Example: should I watch the movie?
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Cost   Benefit Example  Benefit Example Should you go to the other store to save $10  on a $25 computer game? Benefits are clear. Costs are harder to define. Hypothetical auction Would you walk the extra distance if someone  paid you $9? If you would walk to town for less than $10, you 
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This note was uploaded on 04/28/2011 for the course ECON 1 taught by Professor Tang during the Spring '08 term at UCSD.

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Chapter1_s - Chapter1 Chapter1 ThinkingLikeanEconomist...

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