homo economicus opportunity cost thinking at the margin n.
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Homo Economicus, Opportunity Cost, Thinking at the Margin. Economic Man. 1) Rational: cost-benefit analysis 2) Quantifiable: assign numbers to anything How much do you love your mother? How much do you like hot dogs? 3) Statistics are useful 4) Predictable: if know costs + benefits

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economic man
Economic Man
  • 1) Rational: cost-benefit analysis
  • 2) Quantifiable: assign numbers to anything
    • How much do you love your mother?
    • How much do you like hot dogs?
  • 3) Statistics are useful
  • 4) Predictable: if know costs + benefits
    • Individual (microeconomics) and groups (macroeconomics)
opportunity cost
Opportunity Cost
  • The next best choice you didn’t make
    • The thing you would have done if you hadn’t done this
  • Vs. Trade offs (all of the alternatives available)
  • Opp’y cost of college?
    • Tuition? Room and board? 4 years of wages and experience from working?
marginal thinking
Marginal Thinking
  • Margin: next unit
  • Marginal benefit: additional benefit of one more unit
  • Marginal cost: additional cost of one more unit
how to think marginally
How to think marginally
  • Produce/consume until MB = MC
  • What if MB < MC?
    • Spending too much for what getting, should consume less
      • Do you really want that 54th Big Mac?
  • What if MB > MC?
    • Could get more benefit, should consume more
      • Yes, I really do.
law of diminishing marginal benefit utility return
Law of Diminishing Marginal Benefit/Utility/Return
  • At some point next unit doesn’t get you as much as the one before
  • (return to this w/supply and demand)
  • Eating one more hamburger, hiring one more dishwasher