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5 Powers of Economic Thinking

5 Powers of Economic Thinking. Five Powers of Economic Thinking. 1. Resources cost more than you think. Accounting costs--$ cost. Opportunity cost--. The next highest-valued alternative. 2. All decisions are rational. - “Human Behavior reflects rational self-interest ”.

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5 Powers of Economic Thinking

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  1. 5 Powers of Economic Thinking

  2. Five Powers of Economic Thinking 1. Resources cost more than you think. Accounting costs--$ cost Opportunity cost-- The next highest-valued alternative. 2. All decisions are rational - “Human Behavior reflects rational self-interest”

  3. Is this person’s decision rational? http://www.humoroftheday.com/gallery/images/Pierced1.jpg

  4. http://www.romandson.com/common/jpg/slap.jpg Is this person being rational?

  5. 3. All Decisions are Made at the Margin. Margin—the weighing of additional costs and additional benefits of a specific change in the current situation. http://www.new2usa.com/nova/english/00000226/penny.jpg

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

  7. Who in here would NOT pick this $100 bill up if you saw it lying on the ground? Why would you pick it up? MB are at least = MC

  8. Ex. Buying a diamond ring (pg. 5, McConnell-Brue)

  9. 10.00 5 days after the promotion started 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.

  10. 4. The answer to most questions is found in this simple statement: IT DEPENDS!!

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

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

  13. What are these?

  14. 5. People are maximizers We all want more than less. We want everything! You have $35,000 in your pocket and you are going to purchase a car. You have narrowed your search to two choices: YUGO BMW

  15. 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:

  16. Percentage of Total Total Clean AirBenefitsMBCostsMC 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 0 50 45 5 80 75 8 64 10 50 13 32 15 20 20 15 34 12 50 80 8

  17. Percentage of Total Total Clean AirBenefitsMBCostsMC 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 0 50 45 5 80 75 8 64 10 50 13 32 15 20 20 15 34 12 50 80 8

  18. Percentage of Total Total Clean AirBenefitsMBCostsMC 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 0 + 5 50 45 + 80 80 5 75 8 + 147 64 10 + 201 50 + 238 13 +255 32 15 +255 20 20 15 34 +236 +198 12 50 80 +126 8

  19. Important Terms in Economics

  20. Study Group Leaders

  21. Post Hoc Fallacy-- A false cause and effect relationship. A occurs before B; therefore, A is the cause of B. You load software onto you computer. The next day you turn on your computer and it doesn’t turn on. Without checking things out, you are sure it was the software that caused the problem. The picture on your old television goes out. You get up and smack the side of the TV. This fixes the TV. You are sure the next time your picture on your TV goes out, you can just smack the side and it will be fixed.

  22. 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.

  23. Fallacy of Composition-- What is true of a part is 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.”

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