10/7/11

• Use vs. Exchange
• teachers vs. athletes: the relative scarcity is different
• teachers are much more abundant than athletes are
• because of this abundance, we don't value the next teacher more than an athlete
• relative scarcity plays a huge role in determining prices and wages
• total use vs. marginal exchange is a same but different concept
• valuse at margin are very context dependent
• value arises from human interpretation
• Sunk Costs
• sunk cost- cost in which resources are non-recoverable when a decision is made
• not factored into decision
• Humans act with Purpose
• we tend to do things in life to ease off our burdens
• People respond to Incentives
• your behavior will (always) change when the benefits and costs change
• Law of Unintendded Consequences: because people respond to change, there always unseen consequences that reveal themselves some time after a decision is made
• example: seat-belts- changes the cost of getting an accident by lowering it, however, this raises the quantity of accidents making driving more dangerous