macro 3
What is the difference between marginal values and average values?
Marginal values show the additional benefit or cost from consuming an additional unit of a good, while average values are the benefit or cost per unit of a good.
Since optimization is used to analyze people's choices and help them improve the outcomes of their choices, its..
both normative and positive.
What is meant by comparative statics?
A change in an outcome
There is a proverb "anything worth doing is worth doing well." Do you think an economist would agree with this proverb?
No, because the marginal cost of extra effort may be greater than the marginal benefit
Some people choose to live close to the city center; others choose to live away from the city center and take a longer commute to work every day. Does this mean that those who stay away from the city center are being irrational?
No, because their opportunity cost of commuting must be lower.
Determine if the following statements better describe optimization in levels or optimization in differences. John is attempting to decide on a movie. He determines that the new Batman movie provides him with $5 more of a net benefit than the new Spiderman movie.
Optimization in differences, since he is calculating the change in net benefits between alternatives.
Advances in wireless communication technology reduce the non-financial costs of long commutes: People who ride trains can get work done, and people who drive cars have more entertainment options. Given this information, which of the following will be an effect on the geographic area of cities? How will this result impact people as they decide how close to live to the city where they work? They will be
The total cost of commuting from any given distance to work will reduce because the indirect cost of the commute will fall. more willing to locate further
Economists mostly use optimization in differences, as opposed to optimization in levels, because..
comparing different features of alternatives is simple.
If opportunity cost were to suddenly increase, total cost would..
increase and net benefit would decrease
Optimization is the process that describes..
the choices that households make
Optimization in levels examines... while optimization in differences analyzes...
total net benefits of alternatives; the change in net benefits.
Does the principle of optimization imply that people always make the best choices?
Yes, it is a good approximation for the decisions people make.