A Economics: Studying Choice In a World of Scarcity ● Assume The cost of a class with 20 students is $1,000 per student more than a class of 100 students What do you think e Would it be a good idea to reduce the class size ? Chapter 1: Thinking Like an Economist Slide 11
MB MC Chapter 1: Thinking Like an Economist Slide 11 Economics: Studying Choice In a World of Scarcity ⚫ Assume ◆The cost of a class with 20 students is $1,000 per student more than a class of 100 students ⚫ What do you think ◆Would it be a good idea to reduce the class size?
Applying The Cost-Benefit Principle Rational Person o Someone with well-defined goals who tries to fulfill those goals as best he or she can Chapter 1: Thinking Like an Economist Slide 12
MB MC Chapter 1: Thinking Like an Economist Slide 12 Applying The Cost-Benefit Principle ◼ Rational Person ⚫ Someone with well-defined goals who tries to fulfill those goals as best he or she can
Applying The Cost-Benefit Principle a should you walk downtown to save $10 on a $25 computer game? o The benefit of going downtown=$10 The cost of going downtown is the dollar value of everything you give up to go downtown Chapter 1: Thinking Like an Economist Slide 13
MB MC Chapter 1: Thinking Like an Economist Slide 13 Applying The Cost-Benefit Principle ◼ Should you walk downtown to save $10 on a $25 computer game? ⚫ The benefit of going downtown = $10 ⚫ The cost of going downtown is the dollar value of everything you give up to go downtown
Applying The Cost-Benefit Principle a Should you walk downtown to save $10 on a $25 computer game Estimating the cost How much could someone have to pay to walk downtown? .If you would walk downtown for $9, the trip's cost is $9 o The benefit ($10) exceeds the cost of ( $9) of buying the game downtown Chapter 1: Thinking Like an Economist Slide 14
MB MC Chapter 1: Thinking Like an Economist Slide 14 Applying The Cost-Benefit Principle ◼ Should you walk downtown to save $10 on a $25 computer game? ⚫ Estimating the cost ◆How much could someone have to pay to walk downtown? ◆If you would walk downtown for $9, the trip’s cost is $9. ⚫ The benefit ($10) exceeds the cost of ($9) of buying the game downtown
Applying The Cost-Benefit Principle a Economic Surplus The benefit of taking any action minus its cost The goal of economic decision makers is to maximize their economic surplus Chapter 1: Thinking Like an Economist Slide 15
MB MC Chapter 1: Thinking Like an Economist Slide 15 Applying The Cost-Benefit Principle ◼ Economic Surplus ⚫ The benefit of taking any action minus its cost ⚫ The goal of economic decision makers is to maximize their economic surplus