Homo Economicus, Opportunity Cost, Thinking at the Margin

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Homo Economicus, Opportunity Cost, Thinking at
the Margin
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Economic Man

• 1) Rational cost-benefit analysis
• 2) Quantifiable assign numbers to anything
• How much do you love your mother?
• How much do you like hot dogs?
• 3) Statistics are useful
• 4) Predictable if know costs benefits
• Individual (microeconomics) and groups
  (macroeconomics)

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Opportunity Cost

• The next best choice you didnt make
• The thing you would have done if you hadnt done
  this
• Vs. Trade offs (all of the alternatives
  available)
• Oppy cost of college?
• Tuition? Room and board? 4 years of wages and
  experience from working?

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Marginal Thinking

• Margin next unit
• Marginal benefit additional benefit of one more
  unit
• Marginal cost additional cost of one more unit

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How to think marginally

• Produce/consume until MB MC
• What if MB lt MC?
• Spending too much for what getting, should
  consume less
• Do you really want that 54th Big Mac?
• What if MB gt MC?
• Could get more benefit, should consume more
• Yes, I really do.

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Law of Diminishing Marginal Benefit/Utility/Return

• At some point next unit doesnt get you as much
  as the one before
• (return to this w/supply and demand)
• Eating one more hamburger, hiring one more
  dishwasher