[ECON 202] - Midterm Exam Guide - Comprehensive Notes for the exam (62 pages long!)
Document Summary
Chapter 1 end questions: apple decides to make itunes freely available in unlimited quantities, does this change the incentives that people face- an incentive is a reward that encourages an action, or a penalty that discourages. People undertake activities in which the marginal benefit exceeds the marginal cost. We are incentivized to do certain things based on the benefit that we can receive from it. So we are encouraged to buy more songs because the incentive of freeness encourages that. China is allowing starbucks to do so because they value the good that starbucks is offering. It doesn"t reflect any singular firm"s decision, so it isn"t a self-interest decision: the night before an economics exam, you go to the movies instead of studying. 50%, instead of the 70% you normally score: did you face a tradeoff- yes! You gave up studying to go to the movies.
