Mangerial Ecomics and Goblization

3521 Words May 13th, 2012 15 Pages


It's the first chapter in the text for a course that most of your students wish they did not have to take. My class opens with an admission that I am very aware of this fact, and have a big job responsibility – to explain why it was worthwhile to spend my life working with economics and that it will pay them to learn why.

Chapter 1 is about how economists think, and why they think that way. In my opinion the most important concepts to convey are:

1 Why economists use models instead of collecting facts in an ad hoc manner. The emergency room algorithm seems to work fairly well, possibly because it immediately turns a popular fable (the importance of personalized medical relationships) on
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5 FT Think like an economist when proposing answers to this question – peer forward to Chapter 15 and look at complementarity between computers and labor. More abundant computing resources raise labor's marginal product, if only because they replace what were once time-consuming calculations of little interest in themselves. So use the computer, but what you put into it will be a model of some process and the complexity of that model will be limited by your brain's abilities. Make it too complex and the computer will give you a mass of numbers that you are unlikely to be able to make sense of, and may in fact make no sense at all.

7 CP This is a positive analysis – there are normative justifications (which students will learn later) for laws against price-fixing, but the standard prisoners' dilemma example can provide a positive analysis of the incentives of the perpetrators.

8 FFT The question is about thinking at the margin. The fact that the cost (increased accident risk) is higher does not imply that all conversations go unmade, but does imply that you will not take part in some low-value ones.

8 CP Lots of reasons why it is rational to enroll. What you are buying is the knowledge that only comes with enrollment, and you have reason (from the experience of others) to believe that the gain, even if you cannot characterize it today, is worth the cost. If the
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