Economics 1H - Microeconomics
Mark McNeil

CHAPTER 1 The Economic Way of Thinking

I. Is life a pick-up basketball game?

  1. Cooperation, it must happen or else...
  2. Predictable behavior on the part of others (seek to maximize their own net advantage).
  3. "Social coordination is a process of continuing mutual adjustment to the changing net advantages that their interactions generate."
  4. E.g., traffic
  5. The economy - it works, better than if it were directed.
II. People make choices - they must

The basis on which people make choices: always in response to the expected costs and benefits to themselves.

III. Rules of the game exist. E.g., property rights

IV.Theory

  1. Good theory
  2. Bad theory
  3. The necessity of theory
  4. Post hoc ergo propter hoc

Questions:

3. Mother Teresa accepted the Nobel Prize for Peace in October 1979 and decided to use the $190,000 award to construct a leprosarium, was she acting in her own interest? Was she behaving selfishly? (Self interest can be more or less widely defined depending on the level of social awareness).

9. What happens when the rules of the game (written or unwritten) decree that important meetings won't start until everyone is present and that late arrivals will incur no penalty? Is it in anyone's interest to be punctual? Are these rules of the game likely to prove satisfactory over time? (Rules of the game affect the choices that people make because they affect the relative expected costs and benefits.)

15. Char Cole bought four steaks at the butcher shop on Friday afternoon. Later that evening three friends came over for a barbecue. Do you suppose her purchase of the steaks caused the friends to come over? How can you decide which event was more likely the cause and which the effect? If you read that the crime rate increased in a certain city during a time when the purchase of handguns had also increased, would you suspect a causal connection? Which would more likely be the cause and which the effect? How does theory shape your answer? (It is only theory that helps one understand the relationships in life - and to understand which things are not related.)

©Mark McNeil 1998-2008

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