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Naked Economics. Undressing the Dismal Science. Who feeds Paris?. What is GDP?. Why is it a good measure? Why is it NOT a good measure? . What is price discrimination?. Airplane ticket prices. Do incentives matter?. What is the “superstar phenomenon”?. What is creative destruction?.

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Naked economics

Naked Economics

Undressing the Dismal Science



What is gdp
What is GDP?

  • Why is it a good measure?

  • Why is it NOT a good measure?


What is price discrimination
What is price discrimination?

  • Airplane ticket prices




What is creative destruction
What is creative destruction?

  • Who loses out most often?





What are the two basic assumptions that economists make about individuals and firms
What are the two basic assumptions that economists make about individuals and firms?

  • Self-interested

  • Rational


Role of prices in the market economy
Role of prices in the market economy? about individuals and firms?

  • determining an efficient distribution of resources in a market system.

  • signal for shortages and surpluses which help firms respond to changing market conditions


Advantage of market economy
Advantage of market economy? about individuals and firms?

  • Allocative efficiency

  • The best available model

  • BUT . . . (market failures)


Adverse selection
Adverse selection about individuals and firms?

  • When you do business with people you would be better off avoiding. Adverse selection can be a problem when there is asymmetric information between the seller of insurance and the buyer

  • “What you don’t know CAN hurt you”?


Informational asymmetry
Informational asymmetry about individuals and firms?

  • transactions where one party has more or better information than the other.

  • E.g. – buying a used car, life insurance (adverse selection)


Perverse incentives
Perverse incentives about individuals and firms?

  • an unintended and undesirable result which is contrary to the interests of the incentive makers

  • E.g. car seats on airplanes


Principal agent problem
Principal-Agent problem about individuals and firms?

  • principal–agent problem or agency dilemma concerns the difficulties in motivating one party (the "agent"), to act on behalf of another (the "principal").

  • E.g. corporate management (agent) and shareholders (principal), fast food employees


Prisoner s dilemma
prisoner's dilemma about individuals and firms?

  • example of a game that shows why two individuals might not cooperate, even if it appears that it is in their best interest to do so

  • Ac, Bc – 1 year, 1 year

  • Ac, Bs – 0 , 2 years

  • As, Bc – 2 years, 0

  • As, Bs – 3 months, 3 months


What is an externality
What is an externality? about individuals and firms?

  • is a cost or benefit that is not transmitted through prices, and is incurred by a party who was not involved in the transaction.

  • negative externality – pollution from a factory

  • positive externality – fire department


What is a public good
What is a public good? about individuals and firms?


Role of government
Role of Government about individuals and firms?

  • Stability

  • legal framework

  • Protection of property rights

  • Protection of contracts


What is a public good1
What is a public good? about individuals and firms?

  • Examples


What is productivity
What is productivity? about individuals and firms?


Why are many poor countries poor
Why are many poor countries poor? about individuals and firms?


Are foreign sweat shops bad
Are foreign sweat shops bad? about individuals and firms?



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