Microeconomics ch 2- marginal decisions and trade
Microeconomics ch 2- marginal decisions and trade ECON 211
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This 0 page Class Notes was uploaded by Addie Pearson on Wednesday February 17, 2016. The Class Notes belongs to ECON 211 at Clemson University taught by prof fiore in Winter 2016. Since its upload, it has received 18 views. For similar materials see Micro Economics in Economcs at Clemson University.
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Date Created: 02/17/16
MARGINAL DECISIONS Why are good decisions MARGINAL decisions Ex Boeings big decision Boeing has invested 50 million in a newjet initial New design is 10 million jet just as good but cheaper Engineer argues second design is better to drop idea one boss argues that they have already spent 50 million can t ignore that giant cost both jets will end up making 100 million end decision idea 2 is the better decision because it will make more revenue The 50 million idea is SUNK COST a cost that has already been paid that can never be recovered MARGINAL COST a cost that arises from a small increase in activity ex going from 1 of item x for 7 to 2 of item x for 10 marginal cost is 3 Slice Total bene t Marginal Total cost Marginal cost bene t 0 0 0 1 10 10 2 2 2 15 5 4 2 3 18 3 6 2 4 19 1 8 2 Total bene t total enjoyment of the slices of pizza valued in for the sake of the example Marginal bene t how much MORE bene t you get compared to the slice before Total cost cost of x amount of pizza Marginal cost how much MORE another slice will cost CHAPTER 2 Positive statement addresses the consequences of an action If the price of potato chips falls people will eat more potato chips Raising daycare quality will raise its price Mandating that everyone have health insurance will raise health insurance pnces Normative statement expresses a value judgement People eat too many potato chips Daycare should be high quality and inexpensive It is important everyone be covered by heath insurance TRADE MAKES UP ALL BETTER OFF The idea of COMPARATIVE ADVANTAGE specializing based on differing opportunity costs POWERPOINT AGAIN OOPS 2 MORE BULLET POINTS Examples of gains from trade 0 I value a baseball card at 50 0 You value it at 200 If we move the card from me to you we increase its value 50D200 I sell it to you for 100 0 My surplus 1005050 0 Your surplus 200100100 Gains from trade 50100150 total surplus Note the price we transact at doesn39t affect our gain Why are there gains from trade 0 People have different preferences 0 Trade allows for specialization which reduces opportunity costs ABSOLUTE VS COMPARATIVE ADVANTAGE COMPARATIVE ADVANTAGE to specialize in an activity in which you have the lower opportunity cost ABSOLUTE ADVANTAGE can produce a good using fewer resources
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