ECON-2006EG Study Guide - Quiz Guide: Normal Good, Comparative Statics, Excess Supply
7 Mar 2021
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When an economic agent chooses the best feasible option, she is optimizing. Optimization in levels calculates the total net benefit of different alternatives and then chooses the best alternative. Optimization in differences calculates the change in net benefits when a person switches from one alternative to another, and then uses these marginal comparisons to choose the best alternative. Economists believe that optimization describes most of the choices that people, households, businesses and governments make. Behavioral economics= jointly analyses the economic and psychological factors that explain human behavior. It has three steps: translate all costs and benefits into common units, like dollars per month, calculate the net total benefit of each alternative, pick the alternative with the highest net benefit. Comparative statics= the comparison of economic outcomes before and after some economic variable changed. Marginal analysis= a cost-benefit calculation, it studies the difference between a feasible alternative and the next feasible alternative.
