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AU - ECON 200 - Notes Thursday Jan 17th - Class Notes

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background image Macroeconomics-behavior of economy as a whole  Microeconomics- behavior of individuals  Chapter 1 Incentives matter  People respond to benefits and costs of different options, those change and their 
choice changes (is pepsi or coke on sale= rational self-interest), self-interest bc you 
only look at benefits and costs that affect you not others 
seatbelt example: mandatory seatbelt laws increased the number of collisions bc 
people had a sense of security that they were more likely to survive a crash, 
lowered the cost of risky driving so behavior generally changed to more risky 
driving, more damage to property and pedestrians bc concerns interest of others 
not self, example of economics in even life/ death decisions
Incentives are much stronger tools than persuasion alone (captains of ships only 
paid for # of prisoners that got on, not off, so many less died bc captains had 
monetary incentive to keep them alive, electricity usage price incentive example) 
Institutions affect incentives  Institutions are organizations, customs, rules, laws, contract terms, taboos (explicit 
like laws, implicit like social norms)
Good institutions create socially beneficial outcomes (“The Invisible Hand”, society 
doesn’t change out of nowhere but bc of right incentives), Wal-Mart during 
hurricanes example (efficient system and re-routing of supplies ppl will be in need of
bc incentive to make money off ppl in need)
Bad institutions create socially destructive outcomes (“institutional failure”), 
Venezuela cheap toilet paper law led stores not to stock it bc they would lose money
(no incentive, self-interest led them not to stock and it became hard for all ppl to 
get toilet paper)
Tradeoffs are everywhere  To get something, people must give up something else= opportunity cost (is this 
activity worth the amount of time I’m giving up that I could spend doing something 
else)
College enrollments rise during recessions bc if you hit the labor market straight out
of hs you will likely be unemployed, and the opportunity cost is less to go to college 
bc you’re not losing anything, enrollments fall during economic prosperity bc 
opportunity cost is higher in salary you would lose from not joining labor market 
while in school 
Thinking at the margin (costs and benefits)- 1 st  piece of candy more marginal  benefit than marginal cost, 4 th  one more marginal cost than benefit even though it’s  the same product (case by case or piece by piece basis)

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School: American University
Department: Economics
Course: Principles of Microeconomics
Professor: O Ozay
Term: Spring 2019
Tags: Incentives and tradeoffs
Name: Notes Thursday Jan 17th
Description: Chapter 1 notes
Uploaded: 01/14/2019
2 Pages 342 Views 273 Unlocks
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School: American University
Department: Economics
Course: Principles of Microeconomics
Professor: O Ozay
Term: Spring 2019
Tags: Incentives and tradeoffs
Name: Notes Thursday Jan 17th
Description: Chapter 1 notes
Uploaded: 01/14/2019