What is this class about?
We will learn how to answer questions like these:
• How are the prices of goods and services determined?
• How does pollution affect the economy, and how should government policy deal with these effects?
• Why do firms engage in international trade, and how do government policies affect international trade?
• Why does government control the prices of some goods and services, and what are the effects of those controls?
2. People respond to incentives
As incentives change, so do the actions that people will take.
Example: Changes in several factors have resulted in increased obesity in Americans over the last couple of decades, including:
• Decreases in the price of fast food relative to healthful food
• Improved non-active entertainment options
• Increased availability of health care and insurance, protecting people against the consequences of their actions
3. Optimal decisions are made at the margin
While some decisions are all-or-nothing, most decisions involve doing a little more or a little less of something.
Example: Should you watch an extra hour of TV, or study instead? Economists think about decisions like this in terms of the marginal cost and benefit (MC and MB): the additional cost or benefit associated with a small amount extra of some action.
Comparing MC and MB is known as Marginal Analysis.
