Day 2 notes
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This 4 page Class Notes was uploaded by M on Wednesday September 9, 2015. The Class Notes belongs to Econ 103 at George Mason University taught by Dr. Donald Boudreaux in Summer 2015. Since its upload, it has received 15 views.
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Date Created: 09/09/15
DAY 2 Useful arrangement of resources Resources are used in a certain order to be used in productive ways Economy is not random nor is it designed Basic Economic Theory Fundamental Building Blocks of Economics Foundation of Microeconomics The 10 Assumptions of Economics 1 Scarcity quotIn short supply ofquot We live in a world of scarcity If something is scarce there is not enough of it to satisfy all human wants at a zero price Almost everything in life that matters in life is scarce quotlfl get it and you can t get it it means it s scarcequot ie food money time oil When something is not scarce you don t care how other people use it Air and gravity are not scarce they are free Most of the things that are valuable to us or things that matter are scarce You have to give something up 2 Scarcity l Choice Cost Scarcity implies choice which implies cost One must choose how to use resources that are scarce ie time When you give up 20 you re not giving up 20 you re giving up whatever else you could have bought with the 20 Cost of the choice that you make Cost is a necessary component of choice To choose is to give something up 3 More is Preferred to Less 4 All Social Order Must be Understood by Understanding Individual Behavior We don t explain things in economics by understanding at the level of an individual Society doesn t have a mind An individual has a mind 5 Each Adult is Rational in Selfinterest Someone is rational if heshe l Acts purposefully with some goal in mind ll Seeks to achieve their goals at the lowest possible cost I Learns 0 Learn from mistakes IV Has preferences that are transitive o AgtB BgtC AgtC o quotlntransitivequot things are irrational 0 People with intransitive preferences cannot make decisions Each adult is rational in selfinterest Does not mean that people are only interested in money and themselves Humans have emotions not always rational A person is quotselfinterested if heshe cares more about himselfherself and loved onesfriends than he cares about strangers 6 Tastes are Subjective No one person can evaluate another person s state of mind as well as that person can evaluate hisher own There s no objective right or wrong for evaluating choices regarding how they affect the chooser There are no wrong choices Economists say quotonly the individual chooser can evaluatequot 7 People Respond Predictably to Incentives If you change someone s incentives people will change their behavior 8 People Make Choices at the Margin Small addition or subtraction ie you ll choose a diamond over a bottle of water but only because you have access to more water but if you have the choice between all the water in the world or all the diamonds obviously you would choose the water It s never all or nothing People say they are quotsafe driversquot but a true safe driver is someone who sits in the car and doesn t drive We don t make quotall or nothingquot choices we make quota little bit less or a little bit morequot choices 9 Not All Costs are Measured in Money Not all costs are monetary costs The true cost of being a fulltime student is the income you are not earning plus the tuition 10 Economics is not about money it s about choices and resources that come together It s not about the money it s about what you can do with it Money is only worthy because we live in a society that uses money as a medium of exchange Intentions are Not Results We don t judge the likely outcome of actions or policies by stated intentions behind the policies or actions Sometimes intentions lead to results getting coffee when you want it Our world is full of unintentional results Following someone s footsteps makes it easier for other people the rst person didn t intend to make a footpath and help other people it just happened Being an economist you have to look past what is obvious you have to look at the whole picture economics trains you to do that Economics is a quotPositive Sciencequot It helps you apply your values in a informative way A statement is positive if it s about objective reality facts not opinions Ceteris Paribusnothing else changes Pencil falling to the ground without any interference example