Econ notes week 3
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This 3 page Class Notes was uploaded by Sydney Clark on Saturday September 17, 2016. The Class Notes belongs to Econ 110 at Brigham Young University taught by Kearl in Winter 2016. Since its upload, it has received 217 views.
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Date Created: 09/17/16
Econ notes week 3 *IMPORTANT* Challenges in the Marketplace (innovations) o 1.) transactions take time Innovations: intermediaries Ex: stockbroker, internet, vending machines, uber o 2.) Double coincidence of wants Innovation: Money Trade for something that everyone wants Ex: Common Commodity What contributes Money? Whatever is agreed on Free trade is the net of everything o 3.) Team production Shirking (“I don’t have time to work as hard…”) Note: There are benefits to specialization Innovation: Hierarchy and bureaucracy Hierarchy is a response to shirking o 4.) Common Property Innovation: property rights, investments If someone owns it they have incentive to invest in long term viability in social responsible way Ex: Copy rights, patent, contract Have a centralized authority who specializes for market as a whole o 5.) NonSimultaneous exchanges Innovation: contract and laws, reputation People are selfinterested o Optimizer: individuals or maximizer o Individuals are rational o Assume A P B or B P A If A is preferred they will choose A A preference can’t be rational if you ask someone else o Assume 2: A P B or B P C then A P C If A is preferred to B and B is preferred to C than A is preferred to C Baskin Robins 31 flavors can be organized parts Rational individuals have transitive preferences Transitive: being or relating to a relation with the property that if the relation holds between a first element and a second and between the second element and a third, it holds between the first and third elements <equality is a transitive relation> 3 : of, relating to, or characterized by transition. You don’t have to compare in complex ways, just pairs NO COMPLEX ANALYSIS Don’t always have transitivity Even though this is not strong in transitive behavior it is strong that CERTAIN behavior is transitive o Assume 3: o There is circulatory in this decision and no transitivity A circular economy is an alternative to a traditional linear economy (make, use, dispose) in which we keep resources in use for as long as possible, extract the maximum value from them whilst in use, then recover and regenerate products and materials at the end of each service life. o We value Pizazz more than Horsepower or color Manipulation If B and T are primary, C wins all If C and B are primary, T wins all If T and C are primary, B wins all o Assumption 4: Choose the best Rational individuals choose the best We want high Benefits and low cost Choose Q so that marginal benefits=marginal costs o Assumption 5: Diminishing Marginal Returns Marginal= last incremental unit The more I choose Q the value of the marginal benefits goes down Q going up means the intensity goes up and the value of Q falls o Intensity is a measure of how much you’re doing in an increment. o o First rule of maximization If(MB/MC)A =(MB/MC)B =Everything you van consume If MCa= $1.00 and MCb= $.50 (MBa/ $1.00) > (MBb/ $.50) o Goal is to create quilibrium o Second rule of maximization Sunk costs are irrelevant You can’t undo it, so don’t worry about it The only thing that can matter in a rational decision is something YOU can actually decide.
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