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Lecture 2

ECON 103 Lecture Notes - Lecture 2: Chlordiazepoxide

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ECON 103
Ryan Allen

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Economics 103
January 9, 2014 Lecture # 2
Chapter 2 Maximization
Principal #1 Maximization: All individuals are always motivated by greed.
oConsumers maximize utility; firms maximize profits.
oAssumes to be universal (to make it testable)
oAll individual behavior is interpreted through maximization.
Maximization is not the same as non-satiation
oNon-satiation = more is preferred to less
Can be harmful -- made worse off by too much of something
(For simplicity, non-satiation is assumed along with maximization.)
oMaximization does not imply:
1. People are always correct.
2. People are always cold and calculating.
Maximization implies:
1. Scarcity
oResulting from greed (unlimited wants coupled with limited resources)
oHaving to discriminate – making choices & facing trade-offs
oIndividuals will compete for things. (ie. Market, violence, sports, war)
Always have winners and losers to any choice
eg. Price increases → seller is happy, but consumers not happy.
oNot the same as rare (limited).
Scarce is valued; people want more than available.
2. No other motivations allowed but maximization
oOnly one motivation that can survive; any other behavior will die out.
ie. Culture, stupidity, irrational to explain the “failing” of the model
No altruism in the economic model
3. Equilibrium
oAll gains from trade are exploited in equilibrium
oNo good deals or bad deals at “the margin”
Equilibrium implies:
1. No Economic Profits.
oExpected Profit = Benefits – All Costs = 0
oProfits drive people to change their behavior; hence, not an equilibrium.
2. No Economic Policy
oEconomics can provide insight into policy debates, but it cannot tell us
what the right answer is. (ie. Should we have free trade, transferable
fishing licenses, gay marriage, and private property?)
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