ECON101 Chapter Notes - Chapter 3: Comparative Statics, Marginal Cost, Marginalism
28 Mar 2016
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3. 1 two kinds of optimization: a matter of focus. Economists believe that people usually make choices by trying to select the best feasible option, given the available information. In other words, we optimize. (first principle of economics) Economists believe that optimization describes most of the choices that people, households, businesses, and governments make: whatever choices people face, economist believe that they are likely to try to choose optimally. Economists believe that people"s behavior is approximated by optimization. This change in focus is all that distinguishes optimization in levels and optimization in differences: in many cases, optimization in differences is faster and easier, because you focus on the key differences between the options (cid:1) Behavioral economics: identifies the specific situations in which people fail to optimize; jointly analyzes the economic and psychological factors that explain human behavior. Examples of not being optimal: self-control problems like procrastination or addiction, performing new tasks making mistakes. Optimum: the best feasible choice; optimal choice.
