FOCUS: MARGINAL THINKING DO NOW: In your notebook, define margin marginal cost marginal benefit...

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Transcript of FOCUS: MARGINAL THINKING DO NOW: In your notebook, define margin marginal cost marginal benefit...

  • FOCUS: MARGINALTHINKINGDO NOW:In your notebook, define marginmarginal costmarginal benefitutilitymarginal utilitydiminishing marginal utility

    Mick just Cant get NO SATISFACTION.No UTILITY!

  • FOCUS: MARGINALTHINKINGDO NOW:In your notebook, define marginmarginal costmarginal benefitutilitymarginal utilitydiminishing marginal utility

    Mick just Cant get NO SATISFACTION.No UTILITY!

  • FOCUS: Marginal AnalysisOBJ.Define and explain key terms.Apply key concepts.Analyze case study. (WidgetWorks)

    How COST-BENEFIT ANALYSIS WORKS!

  • KINDS OF COSTS:

    Any given activity has 2 distinct kinds of COSTSACCOUNTING COSTOPPORTUNITY COST

  • ACCOUNTING COST:

    A simple MONETARY COST of a good or service $$$$$$$$$$$An OUT-OF-POCKET expenseAn EXPLICIT COST

  • OPPORTUNITY COSTThe value of the next best alternative to any given activity, good or serviceReflects the nature of a TRADE-OFF. By choosing to ALLOCATE resources in one way, you decide NOT to use them in any otherAn IMPLICIT COST

  • ECONOMIC COST:

    Accounting Cost+Opportunity Cost TOTAL ECONOMIC COST

  • TRANSACTION COSTS:

    Economic exchanges ALSO have TRANSACTION COSTSEARCH & INFORMATION COSTBARGAINING COSTPOLICING & ENFORCEMENT COST

  • SEARCH & INFORMATION COST:

    Time spent to determineif desired good is availablebest price (comparative shopping)

  • BARGAINING COST:Cost of time it takes for the parties to come to an acceptable agreement (negotiate a deal)to draw up a contractLawyerNotary publicState bureaucracy (permit, license, corporate charter)

  • POLICING & ENFORCEMENT COST:

    Time and effort spent toEnsure that the other party sticks to the agreed termsWarranty rights are applied (may involve lawyer & court costs)

  • REVIEW: 4 Key Economic Assumptions

    People are RATIONAL.People are GREEDY (wants = unlimited).People act in their own SELF-INTEREST.RESOURCES are SCARCE.

  • COST-BENEFIT ANALYSIS:

    Making a list of the PROS & CONS of a decisionWeighing the COSTS against the BENEFITS

  • OPTIMIZATION:GOALMaximize BENEFITMinimize COSTRequires OPTIMAL (most efficient) ALLOCATION of resourcesExamines TRADE-OFFS

  • Considering theTIME FACTOR!FOCUS: SUNK COSTSIncurred in the PAST!Impossible to recoverEconomists dont consider them because, Oh, well. You cant get em back, so its not RATIONAL!

  • UTILITY & SUPPLY and DEMAND:DEMAND SIDE the buy side Law of Diminishing Marginal UtilitySUPPLY SIDE the sell side Law of Diminishing Marginal Returns

  • TERMS:Utility: the ability of a good or service to SATIFY a need/want = satisfactionMarginal: one more unit of something; the difference between two thingsMarginal analysis: whatll happen if I produce or consume one more unitMarginal cost the cost of producing or consuming one more Marginal benefit the benefit of producing or consuming one more

  • FOCUS: Utility and the Law of Diminishing Marginal UtilityOBJ:Define key terms. utility, marginal utility, diminishing marginal utility, utilAnalyze case studies.

  • THE LAW OF DIMINISHING MARGINAL UTILITYUTILITY the amount of SATIFACTION you get out of consuming another unit of somethingTHE LAW OF DIMINISHING MARGINAL UTILITY - each additional unit provides less UTILITY or SATISFACTIONUTILS : imaginary units used to measuresatisfaction or UTILITY

  • 91Sunk cost3149

  • highlighter2. Expresso 3. Ice Cream 1. Expresso

  • FOCUS: EXTERNALITIESAn EXTERNALITY is a COST or a BENEFIT that affects a third party not involved in a transactionTYPES:POSITIVE (ex.: smelling my neighbors roses)NEGATIVE (ex.: pollution)COPY INTO YOUR NOTES NOW !!!!!!

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