Boudreaux Week II
Boudreaux Week II econ 103-004
Popular in Microeconomic Principles
Popular in Economcs
This 4 page Class Notes was uploaded by Wesley Hunt on Friday September 11, 2015. The Class Notes belongs to econ 103-004 at George Mason University taught by Donald Boudreaux in Fall 2015. Since its upload, it has received 124 views. For similar materials see Microeconomic Principles in Economcs at George Mason University.
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Date Created: 09/11/15
Week 2 From video Thomas ThwaitesHow I Built a Toaster Left to one s own devices one could not build a toaster Thwaites tried thoughA kit with 400 different bits Each a different minerahad to contact miners for different metals to make toaster Had to research metallurgy but couldn t find relevant info Made 0 and mica from scratch Later revealed it was just easy to buy a toaster final result was shoddy All related to the pencil allegory Thwaites could have made the money in half an hour but took five months to make a broken toaster Shows how complex our world is Nobody knows how to make what we consume everyone makes a small part of it Connectivity and communications today would have shocked Louis XIV What is going on to make everything so convenient Somebody had to boil a bagel thankless job thanked by being paid Our world isn t perfect but it works well enough and the enjoyment is from its successes 4 24 arrangement of values Exclamation point so many factors and ways to arrange things Like shuffling cards only one way exists at a time Billions of labour resources billions of ways to organize them Only humans care how things are organized and used Can t throw something in a pot and hope for the bestwill usually be useless You want specific people with a specific set of skills in the right places to make it work Not just know how it works but what it is worth Economics is about how the world functions with such diversity in resources and materials Nothing is obvious Not a flat stagnant Earth which has the Sun as a satellite Astronomers just kept finding holes in this theory The world around you is supposed to change through hearing these stories To tell this story of economics one must start from somewhere Fundamental Building Blocks 1 We live in a world of inescapable scarcitynot necessarily something difficult to obtain just not enough to supply every desire for it at zero cost nearly1 everything is scarce 0 Not Scarce Breathable Air Gravity Barometric Pressure 2 Scarcity gt Choice gt Cost Arrange needs in order on a limited budget eg Supermarket on only 50 cash 0 Buy what you need at first and in proper order of needs What you give up is what you bought instead Cost of toilet paper is root beer CHOOSING MEANS GIVING UP SOMETHING ELSE In order to obtain something of equal value must first be lost You don t care about the money only what it can give 94B is worthless on a desert island 0 Bill Gates is rich because he knows how to use his money 3 More is preferred to Less when all else is equal 0 Order large pizza over small if priced the same 4 We assume individuals each human is rational and selfinterested RATIONAL DOES NOT MEAN c That people are logical c That people are flawless 1 Look for goods and services goods will not be limited to tangible items c That people always choose wisely c That people are intelligent RATIONALITY IS 0 People act with an individual purpose in mind one simple goal eyes set on a prize 0 We learn from our mistakes we keep making them but we take them into account for next time 0 People have preferences that are transitive if apples gt bananas gt cantaloupe then apple gt cantaloupe lf choices intransitive no choices are made can change but always transitive SELF INTEREST IS 0 Each of us cares most about those closest to us more so than strangers o How willing you are to incur on the behalf of others 0 More willing to give brother a kidney than professor o This is just the way humans are ethics beside the point in economics 5 People respond to incentives o If grade guaranteed less study incentive o Incentive to attend classlectures based on the exams o Economists always ask what incentives are 6 Tastes and preferences are subjective 0 Only each individual understands what he or she experiences in a certain action 0 Only you know how much you like vanilla ice cream 0 Some people less averse to smoking evaluates more the benefits 0 ln economics there is no right or wrong answer 7 Choices are made at the margin 0 Margin Additional unitsnever dealt in absolutes Tutor Question 0 WaterDiamonds Paradox higher stakes and circumstances affected the immediate choice Adam SmithThe Wealth of Nations Diamonds worth more than water despite being less useful than water People make decisions based on margin Tutor Question When people choose they don t choose all the water or diamonds just the one they see 8 All social phenomena are explained as a result of individual human actions 0 Economics assumes the only entities in the social world with minds are human beings 0 Society on the whole does not move on its own 0 Churches made of individuals who choose to act similarly 9 People remain the samefundamentallywhen they change jobs Rationality and selfinterest do not change automatically Incentives change but not people 10 lntentions are not results Tutor Question Don tjudge merits by any intentions Beware of scammers unintended consequences Gordon Tullochtestified congress in the 60s Tulloch was asked to reduce highway fatalities Tulloch proposed every car have a steel dagger that cannot be removed Make cars dangerous Sword of Damocles allegory 198688 Sioux City IA plane crash home video revolution Only a few passengers died Had the child been strapped into the seat they would have survived Economists said it should not be law though Under age 2 incentive is kid flies free in the lap of an adult If the child takes a seat charge goes up and less incentive to fly What you have to think about is marginal cost More kids would die in car crashes than in plane crashes