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Econ notes week 3

by: Sydney Clark

Econ notes week 3 Econ 110

Sydney Clark
GPA 4.0

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Marginal benefit and marginal costs, Shirking and innovations
Econ Principles and Problems (ECON 110)
Class Notes
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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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