Macro vs. Micro Macro Economy as a whole. Representative topics: level and growth of total output, inflation, employment. Micro Markets considered separately.

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Presentation transcript:

Macro vs. Micro Macro Economy as a whole. Representative topics: level and growth of total output, inflation, employment. Micro Markets considered separately. Representatitive topics: specific labor markets (e.g. market for nurses), oil prices, monopolies.

Thinking Like an Economist Chapter 1 Week 1

Rationality Assumption People have well-defined goals and try to fulfil them the best they can.

Scarcity Principle No free lunch. Boundless needs and wants.

Concept of Cost Dollar costs (seen) Opportunity costs (unseen) Sunk costs (out of sight—forget about them!)

Cost Benefit Principle An action is taken if marginal benefit exceeds marginal cost.

Space Shuttle Example Number of launches Total cost ($ billions) Total benefit ($ billions) Average cost ($ billions) Marginal cost ($ billions)

Space Shuttle Example Number of launches Total cost ($ billions) Total benefit ($ billions) Average cost ($ billions) Marginal cost ($ billions)

Decision Pitfalls 1.Measuring costs or benefits proportionally. 2.Ignoring opportunity costs. 3.Ignoring sunk costs. 4.Using average instead of marginal costs and benefits.

Current Statistics U.S. GDP (2005) 12,485,725,000,000 Unemployment 07/06 4.8% Inflation 07/06 4.1% Growth %

How much compost should you buy? Pounds of $.50/lb Pounds of $.30/lb