101chapter4 - Chapter 4 Economic Theory Chapter 4 Economic...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Chapter 4. Economic Theory, Chapter 4. Economic Theory, Markets, and Government Markets, and Government • Economic Theory • Market Failure • The Role of Government I. Economic Theory I. Economic Theory • Elements • objectives • constraints • choices objectives objectives • what do we want to do? • people: maximize satisfaction • firms: max. profits • gov't: max. re-election or budget constraints constraints • limits on how we achieve objectives • physical (PPC) • financial (budget constraint) • legal (property rights) choices choices • a statement about likely choice • law of demand • law of supply key assumption key assumption • people are rational • people make best decision give their objectives and constraints • rational decisions are • consistent • forward-looking rationality rationality • full • use all available info when making decisions • bounded • limited ability to process information rationality & objectives rationality & objectives • self-regarding preferences • maximize own satisfaction • other-regarding preference • max. own and others' satisfaction • care what others think • combine theory with observation • simplest theory, • consistent with observation • (Ockham's razor) Theory vs. observation Theory vs. observation What if observations do not match What if observations do not match theory?...
View Full Document

This document was uploaded on 06/18/2011.

Page1 / 41

101chapter4 - Chapter 4 Economic Theory Chapter 4 Economic...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online