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ECON 2030 Notes

ECON 2030 Notes - Economics 2030 A The Basics 1 Economics...

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Economics 2030 8/23/10 A. The Basics 1. Economics and Economies a. Definition i. every decision made in life is made in scarcity ii. the study of how societies provision themselves with the material means of existence What? How? For whom? Consequences? b. Markets i. although a market can be a physical place, it usually refers to a pattern of human behavior involving the exchange of goods and services for money (social interaction) c. Microeconomics i. looks at decisions of individual buyers, sellers, and producers d. Macroeconomics i. looks at how economic decisions affect society as a whole 8/25/10 – Practice problems Ch 1: 6-12, 16-18, 21; Ch 2: 1,2, 4-8, 10 A. Economic Reasoning 1. Opportunity Cost a. the next best thing one gives up when making a decision b. this can be monetary or non-monetary 2. The Margin a. marginal decisions are small, incremental decisions rather than yes/no propositions line one goes up to 3. Rationality a. when faced with two options when someone has to make a choice, we assume the person will choose the decision that is best for them at the time the decision must be made b. this means an option that is at least as good as the opportunity cost (or better) c. in the case that the two options are equal, either decision is considered rational d. determining accurately what the relevant benefits and costs are is important B. Examples of Economic Reasoning 1. Bibi the Tutor, parts 1 and 2 a. Case 1 i. Bibi decides to hold tutoring sessions on Saturday evenings to supplement her income. She works on Saturday and charges $30 an hour. She sees a ticket for her favorite band on Ticketmaster and buys it for $60. She forgets about the concert and schedules a 2-hour tutoring session. She then remembers the concert on the day of. ii. She cannot reschedule the tutoring session, but she won’t be fired. Also, transportations costs are equal between tutoring/concert. iii. Benefits: $60
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iv. Costs: perceived pleasure v. price of ticket is not a relevant cost because Bibi already paid for it i. this is known as a sunk cost vi. if rational Bibi’s decision is based on her value of perceived pleasure i. is it worth more or less than $60? b. Case 2 vii. in another case, Bibi hears about the concert at the last minute viii. Benefits: $60 ix. Costs: -$60 ticket, perceived pleasure x. now, if the perceived pleasure is less than $120, she will tutor xi. we can predict choice 2 if she chose to tutor in case 1, but not vice versa 2. Stasia and the Smorgasbord a. Case 1 i. In Copenhagen, Denmark, Charles and three friends find themselves hungry and with little money. They find one affordable all you can eat buffet for $8 a person. They decide to eat. ii. the $8 have been spent, and are therefore a sunk cost. The decision now has to do with when to stop eating. iii. After all others are finished eating; Stasia continues to eat, insisting on “getting her money’s worth”. She eats until she is sick.
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