CAS EC 101 Chapter Notes - Chapter 13: Behavioral Economics, Loss Aversion, Economic Surplus

• School: Boston University
• Department: Economics
• Course: CAS EC 101
• Professor: Michael Manove

Document Summary

Determinants of absolute and comparative advantage: individual level. Comparative advantage and illegal activities: many economists believe that legalization is the best solution to the illegal-drugs problem. Winners and losers from exports: producers of exported goods win big. Employment in those industries may be increased. Gains may be concentrated among a small number of people. Within agriculture, the gains may be largest in corporate agriculture: exports may hurt domestic consumers if the price of the exported product rises at home. Each consumer will normally lost a small amount. Then domestic consumers would not be hurt. A loss of consumer surplus in the us. But china is selling goods to american consumers, including poor consumers, at low prices. And china is lending their profits to the us at very low interest rates. Concentrated losses vs. diffuse gains: the negative psychological effect of economic losses is larger than the positive psychological effect of gains, behavioral economists call this loss aversion .