Economics for Engineers – Part I Mohammad Tawfik

Economics for Engineers

Part 1

Economics for Engineers – Part I Mohammad Tawfik

Thinking like an Economist

Based on:

Thinking like an Economist: A Guide to Rational Decision

Making

By: Randall Bartlett, Ph.D.

Economics for Engineers – Part I Mohammad Tawfik

6 Principles of the Economist's Toolkit

Economics for Engineers – Part I Mohammad Tawfik

Principle Number 1:

People respond to incentives.

Economics for Engineers – Part I Mohammad Tawfik

We need to anticipate the incentives we are

creating when introducing policies!

Economics for Engineers – Part I Mohammad Tawfik

Principle number 2:

There is no such thing as a free lunch

Economics for Engineers – Part I Mohammad Tawfik

Opportunity Cost

Economics for Engineers – Part I Mohammad Tawfik

Resources are scarce!

Time, money, food

Economics for Engineers – Part I Mohammad Tawfik

Principle number 3: No thing is just one thing;

There are always at least 2 sides to every

interaction.

Economics for Engineers – Part I Mohammad Tawfik

Every buy is a sell

Economics for Engineers – Part I Mohammad Tawfik

If we do not spend money, no one

will earn money!

Economics for Engineers – Part I Mohammad Tawfik

Principle number 4: The law of unanticipated

influences

Economics for Engineers – Part I Mohammad Tawfik

Butterfly effect!

Economics for Engineers – Part I Mohammad Tawfik

Medical cost will increase when disturbance

happens in Iran!

Economics for Engineers – Part I Mohammad Tawfik

Bombing in Iraq results in

a drop of tourism in Egypt!

Economics for Engineers – Part I Mohammad Tawfik

Principle Number 4:

The Law of unanticipated consequences

Economics for Engineers – Part I Mohammad Tawfik

Accidents because of red-light cameras!

Economics for Engineers – Part I Mohammad Tawfik

Economics for Engineers – Part I Mohammad Tawfik

Principle number 6:

No one is, and no one ever can be, in complete

control.

Economics for Engineers – Part I Mohammad Tawfik

Principle number 6:

No one is, and no one ever can be, in complete

control.

Economics for Engineers – Part I Mohammad Tawfik

Economics for Engineers – Part I Mohammad Tawfik

3 Core Concepts

Economics for Engineers – Part I Mohammad Tawfik

I - Rationality

Economics for Engineers – Part I Mohammad Tawfik

I - Rationality

Economics for Engineers – Part I Mohammad Tawfik

Economics for Engineers – Part I Mohammad Tawfik

Personal preferences.

How we decide not to what we decide!

Economics for Engineers – Part I Mohammad Tawfik

Your preferences appear in your choices!

Economics for Engineers – Part I Mohammad Tawfik

II – Marginal Analysis

Economics for Engineers – Part I Mohammad Tawfik

Economics for Engineers – Part I Mohammad Tawfik

If we woke up tomorrow and gas prices had

doubled, how would that affect automobile usage?

Economics for Engineers – Part I Mohammad Tawfik

Economics for Engineers – Part I Mohammad Tawfik

Increasing

spending in

crime prevention

Economics for Engineers – Part I Mohammad Tawfik

Water-Diamond Paradigm

Value in use vs. Value in Exchange

Economics for Engineers – Part I Mohammad Tawfik

III - Optimization

Economics for Engineers – Part I Mohammad Tawfik

Equi-marginal Analysis

Economics for Engineers – Part I Mohammad Tawfik

Imagine yourself on a new TV reality

show.

Economics for Engineers – Part I Mohammad Tawfik

The Price of Safety!

Economics for Engineers – Part I Mohammad Tawfik

How to achieve Economic Efficiency?

Economics for Engineers – Part I Mohammad Tawfik

Economists define efficiency as people being

made better off.

Economics for Engineers – Part I Mohammad Tawfik

They figured they could not find a strong, objective

measure of social welfare, so they settled for a

very weak one instead

Economics for Engineers – Part I Mohammad Tawfik

Pareto Optimum

Economics for Engineers – Part I Mohammad Tawfik

If we take a number of people, and something

makes any one of them better off by their own

judgment without making anyone else worse off,

that is an unambiguous social improvement.

Economics for Engineers – Part I Mohammad Tawfik

Incentives and Tragedy of the

Commons

Economics for Engineers – Part I Mohammad Tawfik

Tradable Quotas

Economics for Engineers – Part I Mohammad Tawfik

Future Values – Discount Rate

Economics for Engineers – Part I Mohammad Tawfik

Behavioral Economics

Economics for Engineers – Part I Mohammad Tawfik

The Ultimatum Game

Economics for Engineers – Part I Mohammad Tawfik

Anchor Points

Economics for Engineers – Part I Mohammad Tawfik

Endowment Effect

Economics for Engineers – Part I Mohammad Tawfik

Status Quo Effect