Chapter 1: The Five Foundations of EconomicsThe dismal science?What is economics?The five foundations of economics

Welcome to Econ 2202Making choices under conditions of uncertainty.What stocks should I buy for my portfolio?How many bagels should I eat?How many hours should I study for Biology?How many cars should I steal?Economics can be categorized as:Microeconomics looking at individualsMacroeconomics looking at broader, economy-wide issues

ScarcityUnlimited wants but limited resourcesIndividuals resourcesTimeMoneySocietys resourcesNatural resourceLaborPhysical capitalHuman capitalEntrepreneurship

Time is Money

ChoicesBecause all societies face scarcity, choices must be made. Individuals make thousands of choices in a day.Societys choicesWhat to produce?How to produce?Who gets it?

IncentivesDecisions are made by responding to incentives.Positive and negative incentives both encourage a response.Some responses are unintended.Incentives can directly impact individuals behavior, but also encourage behavior either indirectly or in an unintended way. Real Estate Agents

Principle of Opportunity CostScarcity requires the need to make choices.Choices require that something be given upOpportunity Cost: value of a resource in its next best use.People subconsciously weigh costs and benefitsEspecially difficult for societyWhat is your opportunity cost of getting a college degree?Everybodys is different.

Gordon HaywardU.S. Mens Water PoloSlumdog MillionaireSaving Private RyanExtreme CouponingFerris Buehler

Marginal PrincipleIndividuals try to maximize their well-being (their utility)Should an extra unit of something be purchased? Should you watch another television show? Should you hike another mile?Compare the benefits and costs of that extra unit; the incremental or marginal benefits and costs.If the marginal benefits (MB) exceed the marginal costs (MC) then undertake the activity. Otherwise, dont.

Along Came Polly

Waiting in LineYou have waited 30 minutes in a line for the Space Mountain ride at Disneyworld. You see a sign that says, "From this point on your wait is 45 minutes." You must decide whether to continue in line or to move elsewhere.

On what basis do you make the decision? Do the 30 minutes you've already stood in line come into play?

Economic Model of CrimeDecision RuleIf MB > MC steal another carAssumptionsResale value on car = $40,000Income = $20,000 per yearJail term = 5 yearsProbability of Arrest = 20%Probability of Conviction = 90%Should you steal the car? Explain.Policy Implications [How to deter crime?]Increase jail sentenceIncrease probability of arrestIncrease probability of convictionIncrease income

Practice QuestionsIn your city, each police officer has a budgetary cost of $40,000 per year. The property loss from each burglary is $4,000. The first officer hired will reduce crime by 40 burglaries, and each additional officer will reduce crime by half as much as the previous one. How many officers should the city hire?

Illustrate with a graph with a marginal benefit curve and a marginal cost curve.

Practice QuestionsWhich of the following will cause property crime to increase?An increase in jail terms.A decrease in personal incomes.An increase in the probability of arrest.A decrease in the expected benefit.

Practice QuestionsA heart surgeon is skillful at unplugging arteries and rerouting the flow of blood. These skills also make her a very skillful plumber. She can clear a drain in 6 minutes, about 10 times faster than the most skilled plumber in town.

a. Should the surgeon clear her own clogged drains? Explain.b. Suppose the surgeon earns $20 per minute in heart surgery, and the best plumber in town charges $50 per hour. How much does the surgeon gain by hiring the plumber to clear the clogged drain?

Trade Creating ValueIndividuals undertake actions (respond to incentives) when the benefits of doing so exceed the costs.Trade is one type of action exchanging one good (even money) for another.Trade makes everybody involved better off.People specialize at what they are good at (something in which they have a comparative advantage) and trade for something else.Markets facilitate exchange / trade.Gains from Trade

What Do Schoolteachers and Sumo Wrestlers Have in Common?How Is the Ku Klux Klan Like a Group of Real-Estate Agents?Why Do Drug Dealers Still Live with Their Moms?Where Have All the Criminals Gone?What Makes a Perfect Parent?Would a Roshanda by Any Other Name Smell as Sweet?

Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?Medium-Term Business Cycles Can Information Heterogeneity Explain the Exchange Rate Determination Puzzle? Macroeconomic Effects of Tax ChangesAn Efficient Dynamic Auction for Heterogeneous Commodities Asymmetric Contests with Conditional InvestmentsEconomics isnt just about the boring stuff

****Info from osullivan re watching tv**