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ECN 340 (22)
Chapter 2

Chapter 2

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ECN 340
Thomas Barbiero

Anything Worth Doing  From early childhood we learned that anything is worth doing is worth doing well; wrong in this chapter  A student put in minimal effort into a paper just to get by, instead of putting in extra effort (additional cost) to get a grade A o Students place a higher value on other activities and less value on a paper - professors do the opposite Ex. 2 students are paid to improve their paper. Student A is paid $8 an hour and student B is paid $40 an hour. Student A would spend more hours and put aside other activities to get more money and a better grade(higher opportunity cost). But student B would fix her paper enough until she thinks its okay since the opportunity cost of devoting her time is less Why the Young Go to College Young go to college because:  (1) They are accustomed to the routine know the education process  (2) They do not have the family responsibilities that the older people have  (3) As a rule, realize the value of education more than the elders do  (4) Are more intellectually alive than older adults  Essential difference between young and old is the opportunity cost of their time  The young going to college is more profitable since they have more time before retirement in comparison to the old going to college Why Students Walk on the Grass  Study of the decision to walk on the grass can be revealing about the causes of pollution and human action in general  Grass may be a short cut, thus can bring benefit  MC is close to zero if the path is already there  Most people think that if they ALONE walk on the grass, the MC will be close to zero  Problem is that everyone independently making similar calculations may make the same rational decision  This illustrates an evolution of a form of pollution  Once a path is made; it is only going to get bigger  A person litters because they get benefits of getting rid of the piece of paper  Their logic is that a piece of paper does not affect the environment o Once everyone follows this logic- a environmental problem develops  If a person begins cleaning the litter, another person might anticipate once they see but other will still litter, thus she does not receive full benefits of her actions so she is less likely to clean up Ex. Cocktail party  Level of volume starts off low but then gets louder- even though the number of people doesn’t change  As the volume increases, talking louder can be rational  If one tries to lower the volume in the room and begin talking softly then they are not heard by the other person, thus lowering the volume in the room is not a rational choice The Economic Calculus Panics  People automatically panic instead of staying calm in an orderly fashion of exiting the burning theatre, sinking ship, or the falling stadium  People could be caught up in panics if they lose their “cool” and don’t consider the consequences of what they are doing  Panics- the spontaneous, unthinking behaviour of people responding to survival instincts, which may be true in some situations (understood in terms of the economic calculus of costs & benefits If there was a personal cost of running towards the doors then everyone would be less likely to run  Panics happen b/c no one is in position of control – more under control with a gun to threaten people The Social Dilemma: Conserving Energy 1970s- most people were concerned about the developing shortage of energy  Once the price for energy increased people became aware and began to turn off unnecessary lights and lower their thermostats.  Ex. John was watching TV and left a light on in the other room. He calculated that getting up to turn off the light required effort. Thus getting up to turn off the light was more costly then the increase of his electricity bill  In 1997 & 1978 natural gas supplies were in critically short supply, and all th
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