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TOPIC 1.ECONOMIST’S VIEW OF BEHAVIOUR
The basic idea of economy is that resources are limited but people have unlimited wants. This is a conﬂict, so we have to choose how to allocate these scarce resources. People face trade-offs (todas las opciones de la decisión comportan costes de oportunidad). People need time to learn to make a decision, usually is called “trial & error”: they try, and it can fall, and then the individuals learn from their mistakes. Individuals will choose a decision subjected to their limited resources and the imperfect information that they have. Like Darwin said “the survival of the ﬁttest”, the enterprises must adapt to costumers, costs, places... The main question is, is there any common pattern that helps explain how people make decisions like those? Economists typically approach these decisions with two criteria: - Marginal Analysis
- Cost-Beneﬁt Analysis
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Thinking at the MARGIN
When choices are made, people think at the margin, marginal beneﬁts are the additional beneﬁts obtained if we choose this option
The sunk costs are the costs which are not recoverable and that can inﬂuence the decision. They are the costs that have preceded the decision, they have been inverted and you can’t recuperate it. It can be a problem if you don’t change a decision thinking that you can recuperate the sunk costs.
The nature of OPPORTUNITY COSTS
All choices involve trade-offs, the value of the forgone option is the opportunity cost of the selected option. There are: -Explicit Costs — Direct dollar expenditures -Implicit Costs — Reﬂect opportunity costs that are not direct expenditures (the
time, for example).
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2. ALTERNATIVE MODELS OF BEHAVIOUR
The “economic model” is not assuming that individuals are selﬁsh (altruism can be explained economically). There are alternative models. — Only money matters — Happy-is-productive ONLY...