Obviously, I "Value" My 9am Econ Class.

Basic Economic Principles

How People Make Decisions                            How People Interact                      How aggregates work

1)People face tradeoffs (TANSTAAFL)

      -what is a cost?

2)Opportunity Costs

   -application: Broken Window

3) "Marginal Analysis"

    -application: subjectivism

4) Sunk Costs

5) People Respond to Incentives

**We live in a world characterized by scarcity**

--more of us than stuff

--Resources scarce. trade one thing for another

1) When execute tradeoffs, says something about our values

Ex: More $$ to defense means less $$ to enviro protection

Other trade offs: economic efficiency & econ. equity 

 1) Make pie as big as possible

 2) Make pie distributed; equitable 

      -->try to find "win-win" solutions

ex: $60,000 check, get only $28,000 out of it; Rizzo leaves advisor job, world loses that $

• investment banker makes 1 mill. and has $300,000 taken out of taxes; instead, quit job, teach for $50,000 and pay $15,000 in taxes-->no tax revenue, lose that production, only get "lousy class"

For "truly free" must produce & consume with out using any resources or sacrificing anything.

=>No such thing as free. 

*It is possible to have to much of a good thing*

Totally possible to spend too much time studying.

Drug Lag: takes years to test drug, new drugs better than old, ppl who need but don't have harmed

Drug Loss: U.S. spends $50 bill on drug research, only 20 new drugs each year

• Testing costly, fewer profit opportunity
• can't solve AIDs & malaria BUT able to give 90 year olds boners (not my example)
• bad drug?!
• Ruin reputation, lose job, $
• good drug..
• no reward, no thanks
• what a messed up incentive! reward mistakes, not progress

What is a Cost?

-Anything that consumes resources

-Tradeoffs means endure a cost

2) Opportunity Costs

When make choices, realize what you give up.

**Net value of next best opportunity**

ex: lemons or limes? it's not the $ amnt, but rather the pleasure amnt

 Lebron: College or NBA star? He did miss out on econ 108

ex; You won Bruce tickets! (not the same without the big man though)

-Cannot resell tickets, have to to

BUT also could see Barry Manilow for $40, but you'd pay $50 to see him.

      What is the opportunity cost?

• $10!
• Net value of what you give up
• 50 - 40 = 10; WTP = willingness to pay
• Consider, must like Bruce at least $10 worth; say indifferent, still have to pay to see Barry

Broken Window

Say roof blown off Rizzo's house--> Pays $ to repair; $ to worker spent on lunch; $ to chef spent on...

BUT

what would happen if roof didn't blow off? Will never know. Could have paved driveway

• No new jobs created
• $ to construction, $ less elsewhere
• unable to pay to redo driveway
• job from one sector stimulated other less
• Didn't spend $ already means you value something else
• Imagine before/after
• before: Have $1,000, and a roof
• after: Have $0, and..a roof
• Actually poorer!