Macro vs. Micro

1
Macro vs. Micro

• Macro
• Economy as a whole.
• Representative topics level and growth of total
  output, inflation, employment.

• Micro
• Markets considered separately.
• Representatitive topics specific labor markets
  (e.g. market for nurses), oil prices, monopolies.

2
http//www0.gsb.columbia.edu/students/organization
s/follies/
3
Thinking Like an Economist

• Chapter 1
• Week 1

4
Rationality Assumption

• People have well-defined goals and try to fulfil
  them the best they can.

5
Scarcity Principle

• No free lunch.
• Boundless needs and wants.

6
Concept of Cost

• Dollar costs (seen)
• Opportunity costs (unseen)
• Sunk costs (out of sightforget about them!)

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Cost Benefit Principle

• An action is taken if marginal benefit exceeds
  marginal cost.

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Space Shuttle Example
Number of launches Total cost ( billions) Total benefit ( billions) Average cost ( billions) Marginal cost ( billions)
0 0 0
1 3 6
2 7 12
3 12 18
4 20 24
5 32 30
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Space Shuttle Example
Number of launches Total cost ( billions) Total benefit ( billions) Average cost ( billions) Marginal cost ( billions)
0 0 0 0 0
1 3 6 3 3
2 7 12 3.5 4
3 12 18 4 5
4 20 24 5 8
5 32 30 6.4 12
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Decision Pitfalls

1. Measuring costs or benefits proportionally.
2. Ignoring opportunity costs.
3. Ignoring sunk costs.
4. Using average instead of marginal costs and
   benefits.

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Current Statistics

• U.S. GDP (2005)
• 12,485,725,000,000
• Unemployment 07/06 4.8
• Inflation 07/06 4.1
• Growth 2005 3.2

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How much compost should you buy?
Pounds of compost _at_ .50/lb Pounds of tomatoes_at_ .30/lb
0 100
1 120
2 125
3 128
4 130
5 131
6 131.5