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PENN STATE / Economics / ECON 102 / What happens when the costs are greater than the benefits?

What happens when the costs are greater than the benefits?

What happens when the costs are greater than the benefits?

Description

School: Pennsylvania State University
Department: Economics
Course: Introductory Microeconomic Analysis and Policy
Term: Fall 2018
Tags: Econ
Cost: 25
Name: Econ 102
Description: This is what's going on during the first week of class. Some of you may find it helpful if you miss any class
Uploaded: 08/27/2018
14 Pages 104 Views 1 Unlocks
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Chapter 1 - The nature of Economics Don't forget about the age old question of Where does criminological theories based on?

  • Did you know that…
  • Economics is one of the fastest growing college majors?
  • During the past 10 years, the number of students majoring in economics at U.S. colleges has increased by 40%?
  • Economics majors typically land higher paying jobs than other majors?
  • Pay attention… it’s for your own good

Don't forget about the age old question of What is the one number divided by the other?

This course will teach you how to “think like an economist”. That’s not as scary as it sounds. In fact, it will help you analyze and interpret daily life decisions in a manner that will emphasize costs, benefits, and possible future consequences.

We also discuss several other topics like What is nature vs nurture in psychology?

The economic way of thinking is a framework to analyze solutions to economic problems. Realize that “economic problems” are not just problems faced by economists, academics, businesses, stock brokers, and the government.

The following are economic problems:

  • Should I go to college?
  • Which courses should I take in college?
  • How much time should I spend studying?
  • Should troops be sent abroad?
  • How should public education be funded?
  • How much should people be taxed?

Don't forget about the age old question of What is the difference between capitalism and communism?

In fact…

Making choices is all about comparing benefits and costs.

When examining choices, we often can choose one of many outcomes. Performing a certain economic action will increase our well-being if: benefits > costs Don't forget about the age old question of What is uniform line charge?
We also discuss several other topics like Enumerate the different roles of the government.

What if the costs are greater than the benefits?

        Don’t do that action

In economics, we often discussed decision making at the margin.

Marginal means additional.

We can ask questions such as:

  • How many additional hours should I study
  • How much more should a firm produce

These are examples of marginal decision making. This type of thinking will tell us to keep doing the activity as long as

  • Marginal benefits > marginal costs

Economic analysis and marginal decision making is a way of thinking about all decisions, major and minor. These rational decisions are made every day.

Major decisions: education, career, financing your home home, family

Minor or quick decisions shop at the mall downtown? Which fast food to eat

Minor decisions can often be made quickly and without much conscious thought!

Example: Sleep in today?

Self-interest and rationality

How do we make these decisions? Economists assume that individuals act as if motivated by self-interest and respond predictably to opportunities for gain.

Rationality assumption: the assumption that people do not intentionally make decisions that leave them worse off

Questions

  • Does the fact that some people make apparently irrational choices invalidate the rationality assumption in economics?
  • Can economic models be applied to situations in which behavior is at odds with what we expect from rational people?

Example of “irrational” behavior: fast driving, smoking, overeating, unprotected sex?

Answer:

  • May be explained by short-sightedness, or imperfect information
  • Still assume people consider costs and benefits

The power of Economic analysis

Is our behavior always the same? Is there any way that our behavior could be changed or modified? Suppose the government, your employer, or the producer of goods you purchase wanted to change your behavior. How would they go about doing so?

Incentives:

An incentive is a reward or punishment for engaging in a particular activity whether personal, business, or political, we will see that incentives matter and do affect decision making

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