Rational people systematically and purposefully do

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Rational People: Systematically and purposefully do the best to achieve their goals. Making decisions by comparing the costs and benefits at the margin. Optimality is usually achieved when marginal cost is equal to marginal benefit.
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GESB 1006: Economics of Everyday Life University of Macau Ten Principles of Economics Principle 3 : Rational people think at the margin . Marginal benefit is diminishing. Marginal Benefit: An Illustrative Example Suppose that in a hot summer afternoon you are offered 1 spoon of tasty ice cream. - That’s so good! Rating: 10/10! 2 nd spoon of tasty ice cream. - Still good…but not as good as the 1 st one. Rating: 9/10. 50 th spoon of tasty ice cream. -No more please. Rating: 0/10.
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GESB 1006: Economics of Everyday Life University of Macau Ten Principles of Economics Principle 3 : Rational people think at the margin . Marginal Benefit: An Illustrative Example Now, suppose the ice cream is not free, but sold at $10/spoon. How many spoons would you have? You should have 𝑛 spoons if your degree of happiness of the 𝑛 𝑡ℎ spoon is worth $10; And your degree of happiness of the (𝑛 + 1) 𝑡ℎ spoon is NOT worth $10.
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GESB 1006: Economics of Everyday Life University of Macau Ten Principles of Economics Principle 4 : People respond to incentives. Incentive : something that induces a person’s reaction. Examples: Discounts People buy more. Higher gas price sales of fuel-inefficient cars decreases. Fixed salary + bonus employees work hard under such wage scheme. Making the rule that cheating caught results in failure no cheating (hopefully). This principle implies that to ensure the most desirable outcome requires us to create the right incentives.
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GESB 1006: Economics of Everyday Life University of Macau Ten Principles of Economics Principles 1 - 4 : How people make decisions. Principles 5 - 7 : How people interact with each other.
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GESB 1006: Economics of Everyday Life University of Macau Ten Principles of Economics Principle 5 : Trade makes everyone better-off. People can benefit from trade because they can buy a greater variety of goods at lower cost. Example: China produces silk; U.S. produces computer chips.
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GESB 1006: Economics of Everyday Life University of Macau Ten Principles of Economics Principle 5 : Trade makes everyone better-off. Question : In the real world, can you name any example that trade benefits one party and completely hurts the other party? No! If it were the case, then there would be no trade.
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GESB 1006: Economics of Everyday Life University of Macau Ten Principles of Economics Principle 6 : Markets provide a good way to organize economic activities . Market : a group of buyers and sellers who interact with each other. “Organize economic activities” means determining the following things: what to produce; how much to produce?
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