ECON-2110 Lecture Notes - Lecture 3: Economic Model, Vehicle Insurance
Document Summary
The economic model is not a realistic description of human behavior! As stakes rise, economic model becomes more accurate example- buying a house. Who cares if it is realistic, is it useful?? (ability to predict) [ the assumption that people decide by comparing mb&mc appears to be pretty useful for prediction ] The economic model is [ positive ] rather than normative. Normative: expresses value - good / bad - often opinion (advocates hate to hear about trade-offs, they just want the normative) Marginal: additional costs / benefits economic questions involve marginal amounts. Marginal costs of attending usc game? yes no. ^^^^ benefit (enjoyment) vs costs you would not face otherwise. Every decision involves both benefits and costs at the margin! Change in total benefits per unit (per action)
