ECN 340 Chapter Notes - Chapter 2: Peanut Butter, Marginal Cost, Holding Hands

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Published on 3 Oct 2012
School
Ryerson University
Department
Economics
Course
ECN 340
Chapter 2: Application of Economic Theory
Anything Worth Doing
- People do things less well because of the added (marginal) cost
- Writing a “C” paper is less costly than writing an “A” paper more effort needed
- Values of professor and students are different
- What quality level to strive for?
Why The Young go to University
- Young more accustomed to routine of school?
- Young do not have family responsibility?
- Young realize the value of education?
- Young intellectually more alive?
- The answer? Young’s opportunity costs lower
- Young’s benefits larger gains for longer period of time
Students Walking on the Grass
- Most people enjoy a beautiful lawn. So why do people walk on it?
- Grass may be a short cut, thus can bring benefits
- Marginal cost is close to zero if the path already there
- Most people think that if they ALONE walk on the grass, the MC will be close to zero
- Path created without anyone wanting it
Pollution
- Pollution may be rational if other’s behaviour cannot be controlled escalation can occur.
Why?
- Each person asks: if I stop polluting but everyone else does not, what’s the use?
- Noise in a restaurant why does the sound lever go higher and higher? Everyone wants to be
heard, looking out for own interests.
- Why in a large group of people no one helps out a victim? Costs to helping out, assume
others will help
The Economics of Panics
- What is rational for an individual to do in a panic situation? E.g. fire
- No one in a position to take charge and co-ordinate
- It is “rational” to panic. Explain why?
Reckless Driving
- Cost and benefits of driving includes probability of getting into an accident
- Airbags reduce probability of death reduce cost of careless driving
- Thus airbags and seatbelt will decrease private costs but increase social costs
- Cost of reckless driving born by others
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- Take a dagger and put it on a steering wheel likely outcome? People drive more carefully.
Conclusions
- People respond to costs in a predictable way
- The action of individual people are often seen as inconsequential, thus people pollute, unless
there is some form of control
Questions to Ponder
- Explain why there is congestion on highways. the cost is low, people don’t think they’ll
contribute to the congestion.
- Why can water shortages occur during long dry summers? How can we avoid such shortages?
increase the cost of water
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Document Summary

People do things less well because of the added (marginal) cost. Writing a c paper is less costly than writing an a paper more effort needed. Values of professor and students are different. Young"s benefits larger gains for longer period of time. Grass may be a short cut, thus can bring benefits. Marginal cost is close to zero if the path already there. Most people think that if they alone walk on the grass, the mc will be close to zero. Pollution may be rational if other"s behaviour cannot be controlled escalation can occur. Everyone wants to be heard, looking out for own interests. Costs to helping out, assume others will help. No one in a position to take charge and co-ordinate. Cost and benefits of driving includes probability of getting into an accident. Airbags reduce probability of death reduce cost of careless driving. Cost of reckless driving born by others.

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