ch 1

ＴＡＢＬＥ １ ### Ｔｅｎ Ｐｒｉｎｃｉｐｌｅｓ ｏｆ Ｅｃｏｎｏｍｉｃｓ

Ｈｏｗ Ｐｅｏｐｌｅ Ｍａｋｅ Ｄｅｃｉｓｉｏｎｓ １: Ｐｅｏｐｌｅ Ｆａｃｅ Ｔｒａｄｅ-ｏｆｆｓ ２: Ｔｈｅ Ｃｏｓｔ ｏｆ Ｓｏｍｅｔｈｉｎｇ Ｉｓ Ｗｈａｔ Ｙｏｕ Ｇｉｖｅ Ｕｐ ｔｏ Ｇｅｔ Ｉｔ ３: Ｒａｔｉｏｎａｌ Ｐｅｏｐｌｅ Ｔｈｉｎｋ ａｔ ｔｈｅ Ｍａｒｇｉｎ ４: Ｐｅｏｐｌｅ Ｒｅｓｐｏｎｄ ｔｏ Ｉｎｃｅｎｔｉｖｅｓ

Ｈｏｗ Ｐｅｏｐｌｅ Ｉｎｔｅｒａｃｔ ５: Ｔｒａｄｅ Ｃａｎ Ｍａｋｅ Ｅｖｅｒｙｏｎｅ Ｂｅｔｔｅｒ Ｏｆｆ ６: Ｍａｒｋｅｔｓ Ａｒｅ Ｕｓｕａｌｌｙ ａ Ｇｏｏｄ Ｗａｙ ｔｏ Ｏｒｇａｎｉｚｅ Ｅｃｏｎｏｍｉｃ Ａｃｔｉｖｉｔｙ ７: Ｇｏｖｅｒｎｍｅｎｔｓ Ｃａｎ Ｓｏｍｅｔｉｍｅｓ Ｉｍｐｒｏｖｅ Ｍａｒｋｅｔ Ｏｕｔｃｏｍｅｓ

Ｈｏｗ ｔｈｅ Ｅｃｏｎｏｍｙ ａｓ ａ Ｗｈｏｌｅ Ｗｏｒｋｓ ８: Ａ Ｃｏｕｎｔｒｙ’ｓ Ｓｔａｎｄａｒｄ ｏｆ Ｌｉｖｉｎｇ Ｄｅｐｅｎｄｓ ｏｎ Ｉｔｓ Ａｂｉｌｉｔｙ ｔｏ Ｐｒｏｄｕｃｅ Ｇｏｏｄｓ ａｎｄ Ｓｅｒｖｉｃｅｓ ９: Ｐｒｉｃｅｓ Ｒｉｓｅ Ｗｈｅｎ ｔｈｅ Ｇｏｖｅｒｎｍｅｎｔ Ｐｒｉｎｔｓ Ｔｏｏ Ｍｕｃｈ Ｍｏｎｅｙ １０: Ｓｏｃｉｅｔｙ Ｆａｃｅｓ ａ Ｓｈｏｒｔ-Ｒｕｎ Ｔｒａｄｅ-ｏｆｆ ｂｅｔｗｅｅｎ Ｉｎｆｌａｔｉｏｎ ａｎｄ Ｕｎｅｍｐｌｏｙｍｅｎｔ

questions

Describe some of the trade-offs faced by each of the

following: ##### a. a family deciding whether to buy a new car The family would choose to lower their cash value income in exchange for a vehicle, Which implies the family can trade cash value for more mobility and a larger choice pool at the cost of less purchasing power. ##### b. a member of Congress deciding how much to spend on national parks On one hand you have an obligation to the environment, and on the other those resources could help other humans in other ways. There is a hidden reputation cost for the politician. There would be more incentive if doing this would virtue signal with the in group. ##### c. a company president deciding whether to open a new factory Again this is a cash flow diversion to an adventure which has a percent chance to increase overall cash flow.But you give up, potentially, your buffer of cash flow until the second factory is in production which could be years. ##### d. a professor deciding how much to prepare foclass Basically how successful does this professor want to be at his job? How much does he want his students to learn? How much obligations does he have besides his profession? ##### e. a recent college graduate deciding whether to go to graduate school Is the time energy mental cost social cost, commensurate to the potentiality from going to graduate school?

2 You are trying to decide whether to take a vacation.

Most of the costs of the vacation (airfare, hotel, and forgone wages) are measured in dollars, but the benefits of the vacation are psychological. How can you compare the benefits to the costs?

3

You were planning to spend Saturday working at your part-time job, but a friend asks you to go skiing. What is the true cost of going skiing? Now suppose you had been planning to spend the day studying at the library. What is the cost of going skiing in this case? Explain.

The cost of going skiing Is the cost of your absence’s Effect on the people who you worked with, So there’s a social cost. There’s a institutional cost right because you only have so many sick days and then there’s a monetary cost.

You are pushing back time onto another slot that may or may not exist to fulfill skiing.

4

You win $100 in a basketball pool. You have a choice between spending the money now and putting it away for a year in a bank account that pays 5 percent interest. What is the opportunity cost of spending the $100 now?

The opportunity cost is the percent interest that you lose out on for immediate cash in.

5

. The company that you manage has invested $5 million in developing a new product, but the development is not quite finished. At a recent meeting, your salespeople report that the introduction of competing products has reduced the expected sales of your new product to $3 million. If it would cost $1 million to finish development and make the product, should you go ahead and do so? What is the most that you should pay to complete development?

I don’t think you should because you’re already down 5 million, And it takes another million to finish it, and your only projected sales is 3 million. Unless the product is projected to do that year over year I don’t think you should do it right?

Summary

In deciding whether to complete the development of your product, focus on the additional costs and expected revenue rather than the $5 million already spent (which is a sunk cost).

• Current Situation: You need to spend an additional $1 million to finish the development.
• Expected Revenue: $3 million.

If the revenue from the completed product exceeds the additional cost, it’s worth proceeding. Here, you’d make a net profit of $2 million, so it makes sense to invest the extra $1 million.

Pseudo Code Algorithm

function shouldProceed(currentInvestment, additionalCost, expectedRevenue):
                # Calculate net benefit if the project is completed
                netBenefit = expectedRevenue - additionalCost
                
                # Determine if the net benefit is positive
                if netBenefit > 0:
                    return "Proceed with investment"
                else:
                    return "Do not proceed with investment"

            # Example values
            currentInvestment = 5000000  # This is the sunk cost
            additionalCost = 1000000
            expectedRevenue = 3000000

            decision = shouldProceed(currentInvestment, additionalCost, expectedRevenue)
            print(decision)  # Output: "Proceed with investment"

In this algorithm: - currentInvestment is the sunk cost (not used in the decision-making process). - additionalCost is the extra investment needed. - expectedRevenue is the projected revenue from the completed product. - The function checks if the additional investment will result in a positive net benefit and makes a decision accordingly.

6

A 1996 bill reforming the federal government’s antipoverty programs limited many welfare recipients to only two years of benefits. a. How does this change affect the incentives for working? It incentivizes individuals to either plan to work or get fucked b. How might this change represent a trade-off between equality and efficiency? Look it’s really hard to give you a definitive answer with two nouns that don’t have concrete meanings. A better definition would be full efficiency is those who create value own all the value they create. It still seems fuzzier **** right it really there’s no concrete mathematical definition.

look If you wanna get ignant,

ch 2

For example, suppose that two people are discussing minimum-wage laws. Here are two statements you might hear:

Portia: “Minimum-wage laws cause unemployment.”

Noah: “The government should raise the minimum wage.”

Ignoring for now whether you agree with these statements, notice that Portia and Noah differ in what they are trying to do.

• Portia is speaking like a scientist: She is making a claim about how the world works.
  
• Noah is speaking like a policy adviser: He is making a claim about how he would like to change the world.

In general, statements about the world come in two types:

1. Positive Statements: These are descriptive. They make a claim about how the world is.
   • Example: Portia’s statement: “Minimum-wage laws cause unemployment.”
     
   • Positive statements aim to describe reality without expressing opinions on what should happen.
2. Normative Statements: These are prescriptive. They make a claim about how the world ought to be.
   • Example: Noah’s statement: “The government should raise the minimum wage.”
     
   • Normative statements express opinions or recommendations about changes or policies.

As you study economics, keep in mind the distinction between positive and normative statements because it will help you stay focused on the task at hand.

• Positive Economics: Much of economics is positive, as it aims to explain how the economy works without prescribing changes.
  
• Normative Economics: Those who use economics often have normative goals, seeking to learn how to improve the economy.

When economists make normative statements, they are not speaking as scientists but as policy advisers.

The broken window didn’t create net new spending; it simply diverted spending from somewhere else. The broken window does not create new activity, only different activity.

People tend to focus on the activity that is visible—the repairs. However, they often overlook the activity that would have taken place had the window not been broken.

This illustrates the concept of opportunity cost: what is unseen or foregone when resources are redirected.

ch 3

Opportunity Cost

Hence, Ruby’s opportunity cost of producing 1 ounce of potatoes is ½ ounce of meat. In other words Ruby gives up one half ounce of meat per ounce of potatoes.

ow consider Frank’s opportunity cost. Producing 1 ounce of potatoes takes him 15 minutes. Because he needs 60 minutes to produce 1 ounce of meat, 15 minutes of work would yield ¼ ounce of meat. Hence, Frank’s opportunity cost of 1 ounce of potatoes is ¼ ounce of meat.

Unless two people have the same opportunity cost, one person will have a comparative advantage in one good, and the other person will have a comparative advantage in the other good.

Trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage

For both parties to gain from trade, the price at which they trade must lie between the two opportunity costs.

If the market cost is lower than your opportunity cost it’s a good deal.

Questions

Pat and Kris are roommates. They spend most of their time studying (of course), but they leave some time for their favorite activities: making pizza and brewing root beer. Pat takes 4 hours to brew a gallon of root beer and 2 hours to make a pizza. Kris takes 6 hours to brew a gallon of root beer and 4 hours to make a pizza.

1. What is each roommate’s opportunity cost of making a pizza? Who has the absolute advantage in making pizza? Who has the comparative advantage in making pizza? pz rt P 2 4 K 4 6

P(2,4) pz= 2/4 = 1/2rt rt= 4/2 = 2pz

K(4,6) pz= 4/6 = 2/3rt rt= 6/4 = 3/2pz

2. If Pat and Kris trade foods with each other, who will trade away pizza in exchange for root beer? k trades pz, p trades rt

3. The price of pizza can be expressed in terms of gallons of root beer. What is the highest price at which pizza can be traded that would make both roommates better off? What is the lowest price? Explain.

k pays 3/2pz, p pays 2pz idk?