Economics 2023-02 Principles of Microeconomics Professor Jim Cobbe Welcome!

1. Economics 2023-02 Principles of Microeconomics Professor Jim Cobbe Welcome! Please move in toward the middle of the row!

2. Basics • No textbook in the bookstore – you get it by mail, after registering and paying at www.aplia.com • Weekly homeworks on aplia • Our final is Friday 27 April at 7.30 a.m. If you can’t handle that, get in a different section. • Check BlackBoard and email frequently • You need an RF PRS transmitter – starting next week

3. Economics 2023-02 Class 2 11 January

4. Introduction • Econ is a ‘social science’ • Social means it is about people; • Science means it is based on theory [hypotheses] and evidence.

5. What kind of science? • Most economists, and most economics text books, try to emulate Physics – argue from assumptions, then check against the evidence. If the hypothesis is not contradicted, i.e. the theory is not contradicted, then tentatively accept it. Text books tend to teach the theories that have been around a long time and not convincingly rejected.

6. Physics – or Biology, or both? • An alternative model is from old-fashioned biology: observe things that are puzzling, come up with a plausible hypothesis, then look for evidence. • That is what ‘naturalists’ did – collected data, looked for puzzles, made plausible hypotheses, looked for more evidence.

7. BOTH • We’ll do the Physics thing – you’ve got to know the established jargon and theory – but we will also do some ‘economic naturalist’ stuff, because it is interesting and illustrates some important economic concepts. • The rest of this class will be examples of economic naturalism.

8. The Economic Naturalist Knowing biology makes it possible to discern additional pattern and texture in natural environments. • Why, in most species, are males bigger and more colorful than females?

9. Most animal species are polygynous. Males compete with one another for access to females. The winners taking multiple mates and sire most of the offspring to their species.

14. Why are the antlers of male elk “too big”?

15. Exceptions • Of course, some animals are monogamous – e.g. swans, some other birds, humans?

16. Very little sexual dimorphism in monogamous species.

17. Economic Naturalism • Through this course, we want to find ways to answer questions about the behavior of people and organizations – economic answers. Naturalism – observe and explain apparent puzzles – is part of that. • Most of the rest of this class is about examples of questions students of Professor Frank asked – you are welcome to submit similar questions to me by email, with your answer.

18. Example 2.1. “Why do the keypad buttons on drive-up automatic teller machines have Braille dots?” (Bill Tjoa)

19. Your question must be interesting. Your answer must be plausible. [You don’t have to be sure your answer is ‘right’ – you can’t know for sure; but it must be plausible, make sense]

20. Example 2.2. Why are child safety seats required in cars but not in airplanes?” (Greg Balet)

22. Breaker Morant Picnic at Hanging Rock The Last Wave Strictly Ballroom Priscilla, Queen of the Desert My Brilliant Career Mad Max Crocodile Dundee Gallipoli Moulin Rouge Walkabout Lantana Rabbit Proof Fence The Year of Living Dangerously Muriel’s Wedding Shine What do the items on this list have in common?

23. Example 2.3. Why are Australian films so good?

24. Criteria for choosing a film to see: Is it by a well-known director? Does it feature a favorite actor or actress? Has it gotten rave reviews in the media? Word of mouth?

25. The only Australian films with a chance to make it in the US market are really good ones — those able to generate strong reviews and word of mouth. [How many Aussie actors and directors do you know by name?]

26. Example 2.4. Why do brides spend so much money on wedding dresses, while grooms often rent cheap tuxedos, even though grooms could potentially wear their tuxedos on many other occasions and brides will never wear their dresses again? (Jennifer Dulski)

27. To enable the renter to make a fashion statement, a rental company would need to offer 40 different styles of gown in each size. Each gown would be rented only once every 4 or 5 years. To make money, the company would have to charge a rental payment that exceeded the purchase price. No one would rent.

28. If men are content to wear a standard style tux, then two or three suits in each size will do. Each suit can be rented 5 or 6 times a year Rent = about 25% of purchase price

29. Example 2.5. Why are round-trip fares from Hawaii to the mainland higher than the corresponding fares from the mainland to Hawaii? (Karen Hittle)

30. Example 2.6. Why do airlines charge much more for tickets purchased at the last minute, while Broadway theaters follow exactly the opposite practice? (Gerasimos Efthimiatos)

31. Example 2.7. Why do many people buy larger houses when their own children leave home? (Tobin Schilke)

32. Example2.8. Why did paper towels replace hot-air hand dryers in public restrooms in the 1970s?

33. Example 2.9. Why is airline food so bad?

34. Should I increase the quality of the meals? B(x) = same as in restaurants on the ground C(x) = much higher than for restaurants on the ground, because of space constraints, flight attendant wages, etc.

36. Example 2.10. Why do many manual transmissions have six forward speeds, most automatics only four?

37. Example 2.11. Why does a telecom-munications equipment manufacturer offer “free” BMW sedans to employees with more than one year of service?

38. BMW lease price was $9000/year. Why not give employees $9000/year in extra salary instead? Let’s figure the logic of gifts: Among each of the following pairs of items costing the same amounts, which item would be the more suitable gift for most close friends?

39. $20 worth of Macadamia nuts (12 oz) $20 worth of peanuts (10 pounds)? or

40. A $100 gift certificate for McDonalds (10 dinners)? or A $100 gift certificate for Chez Pierre (one dinner)

41. $30 of Uncle Ben’s Converted Rice (50 pounds)? $30 worth of wild rice (3 pounds) or

42. Getting the BMW as a gift eliminates guilt feelings about splurging; any perception that you’re trying to impress others; the need to spend the $9000 on kitchen improvements; and the need to explain to your parents why you didn’t buy the more practical Honda Accord.

43. Why do most bars charge their patrons $3 for bottled water but give them pretzels and peanuts for free?

44. Further examples: •Why do top female models earn so much more than top male models? (Fran Adams) •Why aren’t NFL kickers paid the same as leading scorers in other sports? (Ed Kline) •

45. Seven Principles The Scarcity Principle: Having more of one good thing usually means having less of another.

46. The Cost-Benefit Principle: Take no action unless its marginal benefit is at least as great as its marginal cost.

47. The Not-All-Costs-Matter-Equally Principle: Some costs (e.g., opportunity and marginal costs) matter in making decisions; other costs (e.g., sunk and average costs) don’t.

48. The Principle of Comparative Advantage: Everyone does best when each concentrates on the activity for which he or she is relatively most productive.

49. The Equilibrium Principle: A market in equilibrium leaves no unexploited opportunities for individuals, but may not exploit all gains achievable through collective action.

50. The Efficiency Principle: Efficiency is an important social goal, because when the economic pie grows larger, everyone can have a larger slice. Not that they necessarily will, but they could; if the pie stays the same size, it is not possible for everybody to get bigger slices.