Bài giảng Macroeconomics - Chapter 1: Thinking Like an Economist

Chapter 1: Thinking Like an EconomistExplain and apply the Scarcity PrincipleExplain and apply the Cost-Benefit PrincipleExplain and apply the Incentive PrincipleDiscuss the pitfall of measuring costs and benefits as proportions rather than as absolute dollar amountsDiscuss the pitfall of ignoring implicit costsDiscuss the pitfall of failing to weigh costs and benefits at the marginThe Scarcity PrincipleEconomics: The study of how people make choices under scarcity and the results of these choices for society. The Scarcity Principle: People have unlimited wants and limited resources. Having more of one good means having less of another.Also called No Free-Lunch PrincipleThe Cost-Benefit PrincipleTake an action if and only if the extra benefits are at least as great as the extra costsCosts and benefits are not just moneyMarginal BenefitsMarginal CostsEconomic SurplusThe economic surplus of an action is equal to its benefit minus its costsEconomic SurplusTotal BenefitsTotal CostsOpportunity CostOpportunity cost is the value of what must be foregone in order to undertake an activity Consider explicit and implicit costsExamples:Give up an hour of babysitting to go to the moviesGive up watching TV to walk to townCaution: NOT the combined value of all possible activitiesOpportunity cost considers only your best alternativeEconomic ModelsSimplifying assumptionsWhich aspects of the decision are absolutely essential?Which aspects are irrelevant?Abstract representation of key relationshipsThe Cost-Benefit Principle is a modelIf costs of an action increase, the action is less likelyIf benefits of an action increase, the action is more likelyThree Decision PitfallsEconomic analysis predicts likely behaviorThree general cases of mistakesMeasuring costs and benefits as proportions instead of absolute amountsIgnoring implicit costsFailure to think at the marginPitfall #1 Measuring costs and benefits as proportions instead of absolute amountWould you walk to town to save $10 on a $25 item?Would you walk to town to save $10 on a $2,500 item?ActionMarginal CostsMarginal BenefitsPitfall #2Ignoring implicit costsConsider your alternativesThe value of a Frequent Flyer coupon depends on its next best useExpiration dateDo you have time for another trip?Cost of the next best tripExplicit CostsImplicit CostsOpportunity CostPitfall #3Failure to think at the marginSunk costs cannot be recoveredExamples:Eating at an all-you-can-eat restaurantAttend a second year of law schoolMarginal BenefitsMarginal CostsMarginal Analysis IdeasMarginal cost is the increase in total cost from one additional unit of an activityAverage cost is total cost divided by the number of unitsMarginal benefit is the increase in total benefit from one additional unit of an activityAverage benefit is total benefit divided by the number of unitsNormative and Positive EconomicsNormative economic principle says how people should behaveGas prices are too highBuilding a space base on the moon will cost too muchPositive economic principle predicts how people will behaveThe average price of gasoline in May 2008 was higher than in May 2007Building a space base on the moon will cost more than the shuttle programIncentive PrincipleIncentives are central to people's choicesBenefitsActions are more likely to be taken if their benefits riseCostsActions are less likely to be taken if their costs riseMicroeconomics and MacroeconomicsMicroeconomics studies choice and its implications for price and quantity in individual marketsSugarCarpetsHouse cleaning servicesMicroeconomics considers topics such as Costs of productionDemand for a productExchange ratesMacroeconomics studies the performance of national economies and the policies that governments use to try to improve that performanceInflationUnemploymentGrowthMacroeconomics considersMonetary policyDeficitsTax policyEconomics Is ChoosingFocus in this course is on a short list of powerful ideasExplain many economic issuesPredict decisions made in a variety of circumstancesCore Principles are the foundation for solving economic problems