ECON 2001.03H Lecture Notes - Lecture 1: Empiricism, Opportunity Cost
15 Jan 2015
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Scope of economics: economics studies how agents make choices among scares resources and how those choices affect society. Agent - a decision maker: positive economics. What people do objective i. i. ii: normative economics i. ii. iii. iv. Try not to focus on this in this class. The study of how those decisions affect each other i. The best choice possible with the given info - agents must be rational i. (smart and making good decisions) When everyone is optimizing, no one would be better with a different: optimization, equilibrium i. choice, empiricism. Optimization - tradeoffs and budget constraints: optimal level of crime (and other bad things) is not necessarily zero, opportunity cost - the net benefit i. ii. Cost vs benefit must include the alternatives - the opportunity. The net benefit of the best alternative (benefit - cost) Cannot consider all alternatives - must chose next best.
