TAs will now check to make sureeveryone has the class lectureschedule pasted or stapled to the inside front cover of the

your notebooks.

Five Powers of Economic Thinking

1. Resources cost more than you think.

Accounting costs--$ cost

Opportunity cost-- The next highest-valuedalternative.

2. All decisions are rational

Is this person’s decision rational?

http://www.humoroftheday.com/gallery/images/Pierced1.jpg

http://www.romandson.com/common/jpg/slap.jpg

Is this person being rational?

3. All Decisions are Made at the Margin.

http://www.new2usa.com/nova/english/00000226/penny.jpg

Margin—the weighing of additional costs and additional benefits of a specific change in the current situation.

http://seattlepi.nwsource.com/dayart/20010824/226Ground24Q.jpg

Who in here would NOT pick this $100 bill upif you saw it lying on the ground?

Why would you pick it up?

MB are at least = MC

Chicago Blackhawks and Illinois State Lottery--One adult fan would be randomly chosen at each home game, and if the Blackhawks scored at exactly the 10-minute mark of the second period -- not a second over or under -- then that fan would win $1 million.

5 days afterthe promotionstarted

10.00

http://www.youtube.com/watch?v=R_jRHEmoad0

4. The answer to most questions is found in this simple statement:

IT DEPENDS!!

It’s going to rain tomorrow.Is that good or bad?

I lied to you. It’s going to be sunny tomorrow.Is that good or bad?

What are these?

What does the future hold in store for you?

5. People are maximizers

We all want more than less. We wanteverything!

You have $35,000 in your pocket and youare going to purchase a car. You have narrowed your search to two choices:

BMW YUGO

Edmund was a wise old man. And he was asthmatic. Thus, he has a tendency to wheeze. He decided he was breathing too much dirty air, and that he should put a new air cleaning system into his house. He talked to doctors, engineers, air system specialists, and sought opinions of anyone with an interest. He learned that the cleaner the air the more expensive the equipment he must install. And he did some heavy thinking about what it would mean to him to wheeze less. He learned the degree of comfort he would experience at different levels of clean air. He decided to place values on different amounts of clean air according to these comfort levels. The cost and benefit data are summarized in the following table:

Percentage of Total TotalClean Air Benefits MB Costs MC

0% 0 0 10% 50 45 20% 130 50 30% 205 58 40% 269 68 50% 319 81 60% 351 96 70% 371 116 80% 386 150 90% 398 200 100% 406 280

0 0508075645032201512

8

85

45

805034

10131520

Percentage of Total TotalClean Air Benefits MB Costs MC

0% 0 0 10% 50 45 20% 130 50 30% 205 58 40% 269 68 50% 319 81 60% 351 96 70% 371 116 80% 386 150 90% 398 200 100% 406 280

0 0508075645032201512

8

85

45

805034

10131520

Percentage of Total TotalClean Air Benefits MB Costs MC

0% 0 0 10% 50 45 20% 130 50 30% 205 58 40% 269 68 50% 319 81 60% 351 96 70% 371 116 80% 386 150 90% 398 200 100% 406 280

0 0508075645032201512

8

85

45

805034

10131520

+ 5+ 80+ 147+ 201+ 238+255+255+236+198+126

Important Terms in

Economics

Study Group Leaders

Post Hoc Fallacy--

You load software onto you computer. The nextday you turn on your computer and it doesn’tturn on. Without checking things out, you aresure it was the software that caused the problem.

The picture on your old television goes out. Youget up and smack the side of the TV. This fixesthe TV. You are sure the next time your pictureon your TV goes out, you can just smack the sideand it will be fixed.

A false cause and effect relationship.

A occurs before B; therefore, A is the cause of B.

Post Hoc Fallacy--A false cause and effect relationship.

A occurs before B; therefore, A is the cause of B.

Superstitions are post hoc fallacies.

Fallacy of Composition-- What is true of a partis true of the whole.

"A car makes less pollution than a bus. Therefore, cars are less of a pollution problem than buses."

"Atoms are colorless. Cats are made of atoms, so cats are colorless."

“All businessmen are crooks.”