Naked Economics Undressing the Dismal Science. Who feeds Paris?

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Naked Economics Undressing the Dismal Science

Transcript of Naked Economics Undressing the Dismal Science. Who feeds Paris?

Page 1: Naked Economics Undressing the Dismal Science. Who feeds Paris?

Naked Economics

Undressing the Dismal Science

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Who feeds Paris?

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What is GDP?

• Why is it a good measure?• Why is it NOT a good measure?

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What is price discrimination?

• Airplane ticket prices

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Do incentives matter?

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What is the “superstar phenomenon”?

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What is creative destruction?

• Who loses out most often?

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Do brands matter?

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How can black rhinos be saved?

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What is human capital?

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What are the two basic assumptions that economists make about individuals and firms?

1. Self-interested2. Rational

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Role of prices in the market economy?

• determining an efficient distribution of resources in a market system.

• signal for shortages and surpluses which help firms respond to changing market conditions

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Advantage of market economy?

• Allocative efficiency• The best available model• BUT . . . (market failures)

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Adverse selection

• When you do business with people you would be better off avoiding. Adverse selection can be a problem when there is asymmetric information between the seller of insurance and the buyer

• “What you don’t know CAN hurt you”?

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Informational asymmetry

• transactions where one party has more or better information than the other.

• E.g. – buying a used car, life insurance (adverse selection)

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Perverse incentives

• an unintended and undesirable result which is contrary to the interests of the incentive makers

• E.g. car seats on airplanes

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Principal-Agent problem

• principal–agent problem or agency dilemma concerns the difficulties in motivating one party (the "agent"), to act on behalf of another (the "principal").

• E.g. corporate management (agent) and shareholders (principal), fast food employees

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prisoner's dilemma

• example of a game that shows why two individuals might not cooperate, even if it appears that it is in their best interest to do so

• Ac, Bc – 1 year, 1 year• Ac, Bs – 0 , 2 years• As, Bc – 2 years, 0• As, Bs – 3 months, 3 months

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What is an externality?

• is a cost or benefit that is not transmitted through prices, and is incurred by a party who was not involved in the transaction.

• negative externality – pollution from a factory• positive externality – fire department

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What is a public good?

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Role of Government

• Stability• legal framework • Protection of property rights • Protection of contracts

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What is a public good?

• Examples

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What is productivity?

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Why are many poor countries poor?

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Are foreign sweat shops bad?

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What is the primary role of the Federal Reserve?