ECN 340 Study Guide - Spring 2018, Comprehensive Midterm Notes - Winston Ponder, Opportunity Cost, Sexually Transmitted Infection
12 Oct 2018
School
Department
Course
Professor
ECN 340
MIDTERM EXAM
STUDY GUIDE
Fall 2018
Lecture 1: Economics of Human Behaviour
Meaning of the Economic Approach
• A thought process, or the unique manner in which we approach problems confronted by
human beings
• A mental skill that incorporates a special view of human behaviour
• Arises because of (a) unlimited desires, and (b) Limited resources to satisfy those
desires (science has not come up with solutions to these. Reasons for unhappiness.
There is a tendency to want but there is not enough resources)
• Unlimited desires and limited resources
Meaning of Economics
• Unlimited desires include both material and non-material wants: love, friendship, sex,
vacations, good looks (thus plastic surgery), length of life, etc., etc., etc.
• There are limited resources to satisfy all these wants (including time)
• To satisfy their desires, people exchange goods and services: they exchange those things
the hae i audae for those the do’t hae i a effort to a. satisfatio
• Unlimited desires, limited resources
• You will have an economic problem whe ou are sik ad hae astha ad ou do’t
have enough air
Thinking About Values
• Eooists use the aoral approah to aalzig issues ad proles faig hua
beings
• The aoral approah is deoid of our o alues
• The economist tries to understand the behaviour of other given their own values
• David Hume: philosopher 17th century
o Hua eigs hae passio ad ou o’t uderstad the passig
judgement
o The distinction between normative and positive economics
• To understand social behaviour and understanding the social world around us using our
own valye
Positive and Normative Economics
• Positive economics – studies what is
o The analysis of facts to establish cause and effect relationship
o What is
o Without value judgement: the temperature is 24 degrees an assertion that can
be tested
• Normative economics – studies what ought to be
o The part of economics involving value judgements about what the economy
should be like
find more resources at oneclass.com
find more resources at oneclass.com
o What ought to e: There should ot e a poor people i Caada – an
assertion that cannot be tested (just like an opinion, subjective, there is no way
of measuring if this is a fact or not)
Abstractions
• Economists use theory to explain the social world around them
o Theory is an
• Theory is a simplification or generalization that captures a reality. i.e. when the price of
a product falls, generally, more of it is purchased
• We will use theories (or models) to explain much of human behaviour
o To explain we do the things we do, and predict behaviours of others
• Acceptability?: we accept those theories that explain and predict
• Hua aturall geeralize, ut ust aoid usig greed redutiois – generalizing
ased o a fe oseratios trig to put order to the orld
• Abstraction: Tries to understand the world around us through generalization
Thinking About People
• Focus is the individual
o You care most about your satisfaction not because you are selfish but because
you want to be happy. In a world of scarcity, an individual is an single analogy
because of competition
• Individual has value, makes choices and takes action
• “oial goals reflet individual values; soiet is ot idepedet fro idiiduals
• Fousig o idiidual eas aoidig greed redutiois. Eaples: Youg people
are all …; the a oo geeratio is selfish, et.
Thinking About Rationality
• Human beings act with a purpose; we assume each know what he/she is doing and
knows what he/she wants
• Purpose is to improve their (individual) lot: to maximize satisfaction
• But in trying to maximize satisfaction/reaching a goal each individual faces constraints:
environmental, social, and biological
• Many social scientists believe environment DETERMINES human behaviour, rather than
influences it (what economists maintain) – e do’t believe that, we believe the
opposite
o In economics, you make a decision in an instant without thinking about it but
because you feel like it
• Rationality – (cost benefit analysis) does not imply selfishness
• Rationality postulates allows construction of powerful theories in economics
• Nothing is irrational, we try to understand why a person thinks like that. Rationality is
when you naturally go towards what you want.
• Drug addict is as rationale as a doctor
• Maximize satisfaction as you individual see it.
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
There is a tendency to want but there is not enough resources: unlimited desires and limited resources. Thinking about people: focus is the individual, you care most about your satisfaction not because you are selfish but because you want to be happy. In a world of scarcity, an individual is an single analogy because of competition. Insatiability: human beings want more of the things that matter to them. You are insatiable for the things that you personally value. (cid:271)e(cid:272)ause the ri(cid:272)h"s time is more expensive. The cost of getting caught, if religious you would go to hell. But you also need incentives to elicit more supply. Law of demand: strongest possible predictive statement about human behaviour, example: going to church (or any other religious institutions). Individuals consume a product or a service (g and s) until mc = mb. If mb>mc can increase satisfaction by increasing consumption i (cid:449)a(cid:374)t to (cid:862)(cid:272)o(cid:374)su(cid:373)e(cid:863) more of you.
