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Econ notes - Economic Explanations Choices based on 1...

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1-05-07 Economic Explanations Choices based on: 1. Constraints 2. Tastes 49845c1bbf6bd632e50d3f2d219d53f0 Universal Postulate: (Silberberg’s idea) All individuals strive to mitigate or reduce the adverse consequences of the constraints they face; if any constraint changes, people respond so as to reduce, rather than reinforce, these adverse affects. In short: If people are forced to act with constraints, then people will adjust to better fit their standard of needs/actions. Forming an economic explanation: 1. What’s the observation? (Americans tend to driver larger cars. E.g. SUV’s.) 2. Cite a change/difference in some constraint. (Price of gasoline: Gas is more heavily taxed and expensive in Europe. American’s only pay a third. This may be a reason why Americans drive vehicles with large gas consumption.) 3. Give the explanation. (Should be capable of generalization.) Economic Explanations worksheet 1. Question: What is an economic explanation for why old people don’t know how to assimilate new ideas and learn new technology? Answer: Young people are trying to earn jobs, but to beat out the competition, they need to learn new technological skills. Old people don’t have much time left, and time is scarcer for them, therefore they don’t have time to learn new technology. 2. Question: What is an economic explanation for why women tend to participate in religious activities? Answer: Historically in our culture men have had jobs which earned income directly. Religion does not require a cost. 3. Question: What is an economic explanation for how competition in an industry has resulted in some discrimination on the basis of something other than merit? Answer: People have found that in labor markets that some people will work for less causing cheaper prices.
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1-08-07 Chapter 2 Theory of Consumer Behavior Postulate 1: People have Preferences Bundle A: (1 Britney Spears CD, 2 Blank CD’s) Bundle B: (1 Kevin Federline, 2 Blank CD’s) Prefer A to B, B to A, or indifferent Postulate 2 : More is preferred to less Specifically, more variety of goods to less Postulate 3: People are willing to substitute one good for another People are willing to make tradeoffs *Important tradeoff in textbook is safety The Meaning of Value We need some way of determining what things are worth. *In Economics, we measure value in terms of what a person is willing to give up for some good. Marginal Value (MV): The amount of other goods, measured in dollars, a person would be willing to give up to get one more unit of some good. The law of diminishing marginal value: As additional units of some good are consumed, Marginal Value decreases. *Rule: Keep buying additional units as long as MV is greater than or equal to market price. Total Value (TV): The amount a person would be willing to give up (pay) to have all of the units rather than none.
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