ECON-200 Lecture Notes - Lecture 2: Perfect Competition, Marginal Utility, Demand Curve
18 Sep 2020
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When a student considers whether to go to college for an additional year, he compares the fees and foregone wages to the extra income he could earn with the extra year of education. When a manager considers whether to increase output, she compares the cost of the needed labor and materials to the extra revenue. An incentive is something that induces a person to act, such as the prospect of a punishment or a reward. Because rational people make decisions by comparing costs and benefits, they respond to incentives. When fuel prices rise, consumers buy more hybrid cars and fewer less fuel efficient. When cigarette taxes increase, teen smoking falls. Suppose the cost of flying a 200-seat plane for an airline is ,000 and there are 10 empty seats on a flight. The rational thinker makes decisions where mb > mc. In this case, the mb = and the mc = so the airline should sell the ticket.
