10/3/11

• Basic Economic Principles
• How people make decisions(today's lesson)
• How people interact
• How "aggregates" work(i.e. the economy)
• People face trade-offs
• Any decision which involves cost
• Economic efficiency vs. economic equity
• Reveal what a person values and how much
• To be truly free
• to produce and consume without using resources 
• someone pays for it and/or something is done for it
• Is anything on earth free?
• Drug Lag
• many years to test drugs and their efficiency before it's sold
• many people who needed it are dead by the time it's on market
• Drug Loss
• $50 billion on medicinal research annually
• about 20 new medicine are produced annually
• testing is costly and means less opportunity for pharmacy
• Cost = anything that consumes resources
• question to ask: which resources used will disappear and/or were resources prevented to come into use
• taxes are not a cost; cuts and raises are forms of transfer
• Opportunity Costs
• opportunity cost = net value of what you lost from your next best opportunity 
• what you gave up to do something else
• buying a lemon instead of a lime; the cost is the missed pleasure of eating the lime
• Example problem: You win a Bruce Springsteen Concert ticket 
• can't be resold
• only other opportunity is Barry Manilow concert
• $40 ticket
• $50 worth of pleasure
• opportunity cost of going to see Bruce instead of Barry is $10
• Applications: Broken Window
• No new jobs are created
• People at large become poorer at the amount of the damage
• Marginal Analysis 
• application: subjection
• Sunk Costs
• People Respond to Incentives