well the first chapter we will be looking at today is uh principles of economics well today i will i'll start talking about 10 uh economic principles we as an economic agent as an individual we are faced in our economy everyday life and also as a form or as a government policy makers we are facing uh these kind of principles of economics uh every day so let's go over 10 principles of our economics first of all when we say economy the word economy comes from a greek word for one who manages a household economic is the study of how a society uses its limited resources to produce trade and consume goods and services so there are a couple of words we need to uh we need to uh discuss more on defining economics well economics uh as you see in this slide economics is the study of the of the choices made by people who are faced with scarcity so in order to make good decisions about many different outcomes we are supposed to make a good a good decision good decision how can we make a good decision so let's discuss about how to make a good decision given all the scarce resources we are facing every day the management of society's resources is important because resources are scarce here scarcity means that a society has limited resources and therefore cannot people produce all the goods and services people wish to have well think about let's imagine an enormously wealthy individual who can have everything he want so let's suppose you have uh you have a lot of money you have a lot of money so you can do i mean you can purchase anything you want and you can go anywhere you want and pretty much you can do whatever uh you want to do with money then think about uh this kind of wealthy people we may uh we might think that uh this rich person will not have any scarcity issue how do you feel about it do you agree well scarcity is not in his well scarcity uh can be applied to anybody regardless of the money he owns for example the wealthiest guy in uh mankato glen taylor he also have he also has a scarcity problem so first of all let's discuss about a scarcity because our resources are limited our resources are limited we are not able to do everything we want in order to make one thing in order to do one thing we should give up the other thing because of scarcity yeah questions or chatting on our uh on our class if you have any questions you can raise your voice that would be uh much easier for me to catch your question so glenn taylor what do you think do you think he has a scarcity problem also okay yes what kind of skills do he uh he is facing every day he has a lot of money right multiple uh uh billion dollars uh so he can do whatever he can to have pretty much everything he want to do with money but maybe the government not allow him to do whatever he wants okay and what else like list historic rules for using his swirls well think about time everybody has 24 hours a day so nobody may use more than 25 or 25 hours per day even glenn taylor or bill gates uh or elon musk uh everybody has only 24 hours per day so time is uh a oscars resources we cannot do everything we want in order to be in one place we should we should give up we should give up uh placing in other place so scarcity can be applied to everybody so regarding scarce uh secure uh scarcity uh we are usually talking about the resources so for example uh people people will have scarcity problems in factors of production those factors of production means the inputs the resources we use to produce goods and services but think about these factors of resources for example natural resources for labor physical capital human capital entrepreneurship well all of these are factors of production but uh when we use these factors of production we always facing uh scarcity problem first of all let's discuss each of these are factors of production what does that mean for example natural resources means for example like land water mineral oil and gas deposit any renewable or non renewable resources these are the things for producing goods and services without having natural resources well we are not able to produce uh many a lot of different goods and services so natural resources is one of important factor to produce labor the human effort physical and mental used by workers and the production of goods and services so we all have we all have uh labor right we need to sell our labor to the s to the buyer uh who would be producing goods and services like forms so labor should be used in producing goods and services but the thing is we cannot have every labor we really want to produce all the goods and services there is also limited amount of labor so there is job market even if we apply for several different places we are not able to work in many different places there's also a physical capital this physical capital means machines buildings equipment roles and other other other things made by human beings to produce goods and services for example when i teach these principles of microeconomics i'm using computer keyboard mouse and network all of these are physical capital without having fiscal capital technically very difficult to produce goods and services and the thing is our economy has a scarcity problem in using physical capital how about human capital human capital is the knowledge and skills acquired by workers through education and experience so everyone has a big amount of human capital and usually when we when we evaluate the level of human capital we are talking about the level of education or job experiences or the skills all those are about human capital again female capital uh is limited so we all have scarcity problem in using human capital and producing goods and services the same problem entrepreneurship that is the uh the effort to coordinate the production and sales of goods and services so entrepreneurs usually take risk and commit time and money to a business without any guarantee of property entrepreneurship would be a kind of know-how how to run a business so natural resources fiscal capital human capital labor entrepreneurship these are main factors of production the thing is we do not have everything we have and also we are not able to produce everything we want produce so there's always some uh scarcity problems so given scarcity what uh how we can make a better or good decision about many different possible choices so in order to answer that question let's talk about several principles in economics so the first group regarding the 10 principle is about how people make decision and then we will discuss how people interact with each other and then we will discuss the forces and trends that affect how the economy as a whole works so today uh i just want want to discuss the first issue how people make decision so the the first principle is the first principle is uh principle number one people face uh trade up people face trade up so two uh uh there is a norm like there is no such thing as a pre-run free uh free lunch free lunch think about a free lunch what do you think do you think uh there is any free lunch in our life if one of your friends asked you to uh take you to a good restaurant i'll buy you a lunch for you okay what do you feel how do you feel do you think it's really free um i mean it is at the time but usually in the long run you end up paying them back in some sort of different way yeah you don't have to though in that way but why it's not free think about that why it's not free the money and labor that were used to uh make the meal okay good what else yeah think about uh katie mentioned uh it still takes time to go to lunch so okay it takes time right takes time taking time is quality why why time is valuable to everybody yeah time is valuable and time is uh money for example think about i'm a lawyer i'm a lawyer if i work as a lawyer then i can make 240 for example right or two hundred fifty dollars per hour in order to have lunch with uh one of my friends who is uh willing to uh offer um well think about situation that situation if i go to lunch with my friend what does that mean i'm supposed to sacrifice my lawyer's work do you agree if i sacrifice my lawyer's work meaning i need to give up 250 bucks if i work one hour as a lawyer then i'm able to make 250 but my friend one of my friend is buying lunch for me by paying like 20 bucks for example okay think about that kind of situation well in order to have like a nice lunch with my friend i should be willing to give up or sacrifice 250 as a lawyer that kind of situation nothing is free even well i'm not a lawyer i'm not making any money right even if i'm not working well if you go to lunch with your friend then you need to give up wanting that's important so to get one thing we usually have to give up another thing for every hour for everyone every hour you do something you should give up an hour you could have used the other thing okay so the first principle is uh there's no there's always some trade-off in uh doing uh something so think about uh these examples like to get one thing we usually have to give up uh another thing guns and butter guns bursts of butter here's guns stand for expenditure on consumer goods and butter that stand for i'm sorry guns guns stand for expenditure on national defense and butter stand for expenditures on consumer goods so as a policy maker or as an individual as an uh as a nation if we spend more money on the expanded expenditure on national defense then we should be willing to give up expenditures on consumer goods so there's always some trade between guns and butter and think about food versus a clothing okay as an individual if i want to spend more money for food then i should be willing to give up some money the same amount of money for all my clothing so there's always some trade-off between food versus uh clothing and also leisure versus work well if you really want to enjoy more leisure time then you should be willing to give up walking time well if you want to make more money by working more then you should be willing to give up your leader leisure time right so there's always a trade up uh in between leaders versus workings and the final one is extremely important efficiency versus equity here's efficiency means efficiency means the society gets the more gets the most that it came from it secures resources so efficiency means how much an economy are produced by using good by using all the factors of production so efficiency means the size of economic pie so in order to maximize efficiency an economy want to maximize the size of economic pie what is equity equity means the benefits of those resources are distributed fairly fairly among the members of society so equity means fair distribution and fair distribution so uh it is ha it is about how the economic pie is divided among economic agent so there's always some trade of problem in between uh efficiency and equity so in order to maximize our production amount in our economy we should be willing to give up fair distribution some sort awesome degree of fair distribution if we want to make fair distribution among all the economic agents then we should be willing to give up a high efficiency that is always true in most of our economy so think about uh like text system proportional text what's the proportional text proportional text you've heard about proportional text right so what is proportional text proportional tax if you make more money more income then you are supposed to pay more more tax the higher income the higher tax so our tax system our income tax system is based upon proportional tax proportional tax so what is the tax rate for our economy the highest tax rate like including federal tax and state tax or city tax currently a tax rate is almost like 50 but this 50 tax rate is not that high in our uh economic history in early 1980s or late 1970s the highest tax bracket was almost 92 percent think about that the situation if you make one dollar you are supposed to pay 92 to the uncle sam then you will be keeping only a cent okay you still want to work hard in that situation even if you are making one dollar most of your income or most of your money will be going to the government that is the case then well i don't want to work very hard right if you are fired if you are unemployed you are still getting some money from the government think about this corona pandemic situation right due to corona pandemic government paid a 600 unemployment benefit and plus corona pandemic incentive 600 so i think many of you got a 1200 per month from the government am i right right one of my friend uh mentioned that well my kids is my kid is receiving 1200 every month from the government he does not want to work anymore come on think about that right he doesn't want to work anymore because there's free money it looks like it's free money from the government what's the reason for me to work very hard i don't want to work very hard because government is giving me 400 every month there's no incentive for me to work very hard if i do not work hard then the total production amount will be going down right so far distribution and maximizing our production amount there's always some conflict there is some trade-off so making decision requires trading up one goal against another and also think about clean environment versus high income as a form i want to maximize my economic profit i want to maximize my economic profit but if i do not care the other guys like health conditions or clean environment then definitely if i'm not if i don't if i if i don't have to pay attention to other people's health condition or clean environment i can definitely maximize my economic practice however well i should uh i should take care of other people's also right so if i uh generate a lot of pollution i'm paying more tax than other firms who do not produce a lot of pollution so government may take care of pollution issues if i make a lot of noises in producing goods and services i pay more tax for that my government can take care of those noise issues also so there's always some trade between clean environment versus high income also so people base trade-off that's the first uh principle we should keep in mind when we deal with any economic uh issues so making decision requires trading of one goal uh against another we need to sacrifice one thing in order to obtain another thing the decision of producers consumers and government determine how an economic system answers three fundamental questions the first one is what goods and services do we produce how do we produce these goods and services for whom do we produce the output why we are trying to answer this question mainly we have scarcity problem we do not everything we do not have everything we have we want to have so we should uh make a good decision on these three questions decision decision uh decision making is at at the heart of economics so the first four principles deal with how people make decision oh i'm sorry okay let's see okay the second principle second principle is the cost of something is what you give up to get it the cost of something is what you give up to get it decisions require comparing costs and benefits of alternatives so think about these three questions do i need to go to college upon my high school graduation or do i need to go to work okay whether to study or go out on a date whether to go to class or i need to sleep more okay the decisions decisions requires comparing cost and benefit of alternatives so when we say here's cost that cost means opportunity cost the opportunity cost of one item is what you give up to obtain that item do you know who this person is do you know who he is toby bryant yeah kobe bryant there's tragic uh accident uh kobe bryant and he passed away uh last year or this year i'm not quite sure due to like uh airplane accident and actually he passed away and most of you you know who he is and he made like million million dollars every year by uh going to the pro or basketball team upon high school graduation i just want to ask you guys why he did not go to college education college why he did not go to college education why he decided to go to the pro basketball team upon his graduation high school make money you're right okay just think about the cost of going to uh college or or uh cost of like sacrificing or giving up uh the opportunity uh to play as a professional player in uh in mba think about the cost my question is why why you guys didn't go to uh i mean why why you are sitting here and why you are why you are studying hard instead of working uh in some places why why you want to get a college degree kobe bryant he doesn't he didn't want to he didn't have to he didn't have to get a college degree what's the difference between me and kobe bryant think about that well when we make decision we are always comparing cost and benefit so i'm sure i believe you need to compare the cost of taking college education and the benefit of taking college education and also kobe bryant thought the same thing what is the cost of going to college and what is the benefit of going to uh college or going to the pro basketball team okay well what's the truth think about the cost of college education for us for example right for us like college tuition for example like um everybody has different uh everybody is paying different tuition about like ten thousand dollars and then additional um uh cost for books or traveling or food or sheltering maintaining your everyday life probably five thousand dollar more so let's say 15 000 per year that would be a rough amount for us to stay here in msu and if we multiply 15 000 by four then about 60 000 probably that would be uh enough amount for us to go through college education right so 60 000 that would be the total cost of taking college education okay do you agree about kobe bryant could be bryant want to take college education he may he may need to spend 60 000 here at this point the thing is if we give up playing playing uh or working as a professional player in a pro basketball team that he need to sacrifice how much for example million million dollars right billion million dollars so to kobe bryant the cost of taking college education is way way greater than what we need to consider the college education here at msu right if you work as a lawyer for example or medical doctor your cost of taking what is ecology education here at msu would be much much higher than the typical student the same thing kobe bryant he could not give up he could not give up multiple million dollars by taking college education so he was smart he didn't go to college and he went to the professional basketball team directly that's important so when we think about cost in our uh our society or our economy we always should consider cost as opportunity cost so kobe bryant chose to skip college and go straight from high school to pros where he has earned millions of dollars let me ask you a question suppose a lawyer oh i'm sorry suppose a lawyer that owns 200 per hour can also type at 200 words per minute should the lawyer hire a secretary who can only type 50 words per minute well i give you i'll give you two minutes think about this question so as a lawyer do i need to hire the secretary or not i mean i guess it could pay off in the long run um instead of using his time to be is their time to be typing they can use it for other things that can benefit them and that person can also uh get better and raise their words for minutes typed and then in the long run end up being able to type just as much so you think the lawyer should hire the secretary uh it depends i guess you have to have a gut feeling on it but what do you mean by depend on it depends on if you think that they're going to be able to get to that 200 words per minute time eventually yeah yeah i think that's a good point any other opinion as a lawyer well think about that i can able to type like 200 words but the secretary the potential secretary i'm trying to hire the secretary is able to type only 50 words so my positivity is four times faster than the secretary potential secretary if i do by myself typing right i can do much much better then what do i need to do do i need to hire the lawyer or not i think it would also depend on if um she'll have more time for doing typing so she might not need to be as fast as he does since he might have other things to get to besides that okay okay good what else well think about the opportunity cost and the benefit uh like gary uh get it you mentioned if i work as a lawyer well i can make 200 for example every hour okay but uh if i like let's say uh how much i i'm uh i may pay to the secretary per hour for example my secretary probably like 25 bucks right for example so for 25 a bucks so i need to type what is that one hour for this particular documentation so i need to work one hour for typing if i have my secretary type this particular documentation then the secretary need to take four hours right so four hours work versus one hour work what's the better think about that well in order to have in order to have the secretary work four hours i need to pay 25 times 4 which is 100 bucks right am i right but at the same time if i work as a lawyer then i can make 200 so instead instead of my own working my own typing well i can have my secretary type particular documentation for four hours even if i have her i mean the secretary uh him or her uh type four hours basically if i pay a 100 that's it i can make 200 by working as a lawyer so definitely i need to hire the secretary okay well that's why uh as an asian we need to trade a lot of things okay for example in the state in our economy we can make uh goods and services much more efficiently than other countries right the low level of producing countries however if we are able to be focused on focused on a particular product making a lot of income or a lot of happiness then that would be uh much much better so we will discuss uh why people need to trade uh based upon this uh principle so you need to always consider cost of something is what you give up that is the meaning of opportunity cost okay let's take one more question here one year ago i loaned a hundred dollar to a friend and she just paid me back the whole hundred dollars the loan didn't cost me anything is it actually uh the course nothing did cost him because of inflation okay one year ago okay i i led 100 i led 100 to one of my friends and i got back 100 from my friend so basically i didn't lose anything what do you think am i right anybody no why why not because a hundred dollars like this year would be worth less than a hundred dollar because of inflation well that is that is the case of considering interest rate but even i okay there is no interest interest rate is zero even interest rate is zero even if you put that money into your checking account or saving account there's no interest rate like hundred dollar will be will not be generating any interest rate then then what's the case if there's no interest rate then 100 one year ago would it be the same 100 today what do you think you lost the time that year of time to be able to um do what you would please with that money okay could you please uh say in more detail about uh could you say your point in more detail say you're say you're living paycheck to paycheck and you need that 100 say that's for your um [Music] say that's for your phone bill for the month and you give them that hundred dollars and you don't have enough money to pay your phone bill for that month you can put it into different perspectives with such things that you need like that okay yeah that makes sense to me and what else any other situation you may consider the inflation rate yeah inflation rate yeah that is true yeah we are experiencing two to three percent inflation rate so the value of money would be different like um like yesterday 100 would be completely different from today's hundred dollars okay what else investment investment okay i like that idea just tell me about more about your investment for example real estate real estate okay well one year think about the stock tesla for example anybody who know tesla right most of you guys know tesla right yes one year ago the stock price of tesla was around like 200 i guess right 200 what's the price today tesla stock is uh what is that 2 104.25 at the current moment okay what does that mean if i bought tesla stock half of tesla style one year ago by paying 100 then 100 could be thousand dollars more than thousand dollars today come on right i really wanted to purchase tesla style one year ago but at that particular moment one of my friend asked me to borrow hundred dollars so i could not buy tesla stock so what does that mean i lost thousand dollars you see what i mean yeah i lost very important investment opportunity that's the cost right that's the cause i need to take so there's all bunch of possible uh examples why we always consider cost in uh in the light of giving up other opportunities that is the meaning of opportunity cost let me give you one more example take a look at this one also our new football stadium was built on land that wall sea alone donated to our university the university didn't have enough to buy the land so the cost of stadium equals the amount the university pays to the construction company that build i'm sorry build the stadium is it true statement or wrong statement so in this case the cost of stadium equals the amount of the university paid to con construction company that built the stadium so let's discuss this case well i just want to [Music] build a stadium but i don't have enough money to purchase land then what am i supposed to do what do you think anybody so the pure cost of building the stadium is just caused uh for paying uh the construction company is that the whole amount just tell me why okay don't be don't be quiet please please say uh your opinion yeah i think so you think so yeah no why no not only the the inspection then what else what kind of other cost we can consider the cost of operating the stadium the utility future real estate tax property tax well that of all future tax would be a little different from what we are discussing right now but let's say uh the university spent like half million dollar five hundred thousand dollars for building uh building the the stadium but uh well half million dollar can be used in other area also for example like what i discussed before like half million dollars can be invested in the stock market or it can be invested in other uh other area investment vehicle but these days for example gold prices are have been skyrocketing for several past several months or like building stadium is that the only goal for the university to achieve okay there could be many different possible options the university chose to build the stadium that's the choice the university made so in order to calculate the pure cost of building the stadium the university should think about the alternative to use five hundred thousand dollar money for doing something right you see what i mean so the cost of something is based upon what you give up other things so everybody is paying uh tuition for taking 201 class right now right the thing is the pure cost of taking 201 you should think about the cost of giving up other things also it's only you give up like working as a part-timer in particular spot you need to think about that one too so that's the opportunity caused we should we should consider the next principle is the third principle is rational people think at the margin rational people think at the margin here's marginal means marginal means marginal changes are small incremental adjustment to an existing plan of action so our people make decisions by comparing cost and benefit at the margin well you know in order to in order to explain this situation let me give you an example here okay let's suppose that flying a 200 seat plane across the country cost the airline hundred thousand dollars okay so there is a plane uh were 200 available now in this case the average cost of each seat is 500 bucks why 100 000 divided by 200 that will give me 500 then what is the minimum selling price for ticket is it 500 what's that let's discuss this one okay there's a 200 seat available in this plane in this plane and um in this flight actually this airline need to airline company need to spend 100 000 for taking off the flight now hundred thousand divided by 200 seats that's 500 so the minimum selling price must be 500 am i right no why not you can have a variance i'm sorry i'm sorry why why not why minimal selling price must be different i was gonna you could have a variance of the price that goes over five hundred i i'm sorry say it again please first class tickets the first class ticket must be much much more expensive right so they talking about minimum selling price price must be higher than 500 is it what you mean yeah well it's an average cost of 500 meaning there's some seats that are more some seats that are less it's just taking the total and giving you a rough estimate okay is it possible for the airline company to sell the uh the sell a ticket by receiving like 20 bucks or even 50 bucks do you think it's possible they don't sell all the seats on the plane well let's imagine uh taking off uh with 10 empty seats okay somehow the airline company could not sell 200 the whole 200 seat okay right before the airline take up there are still 10 empty seats available and a standby passenger who is willing to pay only 50 bucks for a face it okay what do you think so tense it's available there's a standby passenger who is willing to pay 50 the the average cost is 500 but this guy is only willing to pay 50 bucks so as an airline company what do you think do they need to uh uh pay i mean or sell the ticket by receiving 50 bucks or or not i say they over booked the flight i said they overbooked the flight and then compensate the people that uh didn't make it tell them to take the next one well it's not overbooked i mean 10 seats are available right now 10 seats are empty yeah it's better than zero yeah exactly not zero so by having one more passenger could be a little much more heavier right weight would be much more a little higher without having that passenger so maybe a few dollar more uh cost right right so as you mentioned like 50 bucks is better than a few dollars what does that mean the online company should sell the ticket by receiving 50 bucks because the think about marginal benefit and marginal cost so selling one more ticket given 10 more available empty seats and also uh send by passenger who is willing to pay 50 bucks so what's the marginal benefit marginal additional benefit by selling one more ticket that is 50 so marginal benefit is 50 what's the marginal cost by having one more passenger in the same plane marginal cost is very very tiny few dollars so 50 is way way greater than few dollars so this airline company should sell the ticket by receiving only fifty dollars does it make sense yeah average course doesn't doesn't play a lot in making a decision but people tend to consider average cost in our everyday life we should think about marginal cost marginal cost right when you when you spend some money in the stock market people are not many people are not very good in dealing with stock trading why because they are talk they are always considering on like average goals i spent this much money when i purchased this particular stock okay the stock price went down substantially do i need to hold desktop or do i need to sell it it depends on marginal benefit and marginal cost okay if there is another opportunity for me to make a lot of money by purchasing another stock then i should be willing to will link to what i said take huge loss and then do other things because additional benefit would be way greater than additional cost marginal benefit is greater than marginal cost okay so we should always consider marginal marginal cost and marginal marginal benefit well that's why people think at the margin the similar example here a bobber is trying to decide whether to keep his store open for one more hour okay do i need to open my store one more hour when the barber is making a decision you need to consider marginal benefit and marginal cost for opening his store one more hour the price of haircut is eight dollars in an extra hour he will sell five more haircuts the marginal benefit the revenue generated from the last hour is thus eight dollar time five more haircut which is 40 that's the marginal benefit by operating the store one more hour right so 40 bucks that's the marginal benefit the marginal cost extra cost incurred during the last hour including electricity and the value of his time is 24 so additional cost for opening the store one more hour is 24 whereas the additional benefit additional benefit of opening the store one more hour is 40 so marginal benefit is greater than marginal cost he should remain open one more hour okay that's why i'm talking about people think at the margin okay principle number four principle number four that is uh incentive principle number four is a people respond to incentive and at the same time people respond to disincentives because marginal changes in cost of benefit motivate people to respond so the decision to choose one alternative over another occurs when that alternative's marginal benefit exceed its marginal cost what's the incentive then incentive that is the expected benefit of a decision the expected benefit of a decision minus its opportunity cost so benefit minus opportunity cost expected benefit expected benefit of a decision minus its opportunity cost that is incentives so basically people respond to incentives like economic economics is partially the study of incentives and how laws government policies customs like technological technological improvement and other forces affect incentives and influence decisions so our our economics our economics is basically about how to deal with incentives for example right so how can how can i i how can i make you guys study hard in my classroom well i should think about incentive how how can i give you some incentives for the students who work very hard how can i make this incentive for the student who is not working very hard so if you come to my class in zoo meeting every session then you should have some incentive that's why that's what i'm thinking right you should have some incentive because you are willing to sacrifice your valuable time in order to take my lecture that incentive right so i need to give you some extra credit for the student who attend every single session that's incentive policy uh if the policy changes incentives then it will cause people to alter their behavior so sometimes a government are making a lot of policies in order to make some effect on people's decisions by taking some incentives okay so principle number four is about uh incentives so people respond to incentives and disincentives okay uh let's do some exercise here you are selling your 1996 mustang you have already spent thousand dollars on repairs at the last minute the transmission dies you can pay 600 to have it repaired or sell the car as is that's the option you can have the car being fixed or you can sell the car in each of the following scenarios should you have the transmission repaired the first one the blue value of the car the mustang is six thousand five hundred dollars if transmission works if it doesn't work then five thousand seven hundred dollars blue book value is six thousand dollar if transmission work and a five thousand five hundred it doesn't so could you please answer these two uh answer these two i mean answer the question uh for these two cases i'll give you about two minutes [Music] a will be the answer okay i agree with a okay just one second i'll give you a couple more minutes [Music] okay uh aaa a lot of people are saying a okay [Music] okay when you make a decision on this true case we should think about opportunity cost and marginal benefit here so think about blue book pricing well cost of fixing transmission is six hundred dollar when the blue book value is six thousand five hundred hundred dollar if transmission works and five on five thousand seven hundred dollar if it doesn't what does that mean the benefit of fixing the transmission is 800 because 65 6500 minus 70 is 5700 which is 800 so that's the benefit cost of 600 so benefit is way greater than 600 so what does that mean it works well to have transmission fixed but in the second case the case b benefit of fixing the transmission is only 500 right 6 000 minus well is it right fixing or fixing uh the transmission is only 500. 6000 minus 5 500 right so that is right 500 right if transmission works and then sell it then you can receive 6 000. if it's not working and sell it then you can have 5 500 right so the benefit is 500. however the cost is 600 right the fixing cost is 600 so that's not worth while so you don't want to fix the transmission at this point you got it yeah so when we make the decision when we make a decision we should always compare marginal benefit and marginal cost so we discussed four principles when we deal with any economic issues in our society so the first one is faithful uh people faces uh people face tradeoffs that's the first uh principle the second one is cost of something is what you give up to get it so we should always consider opportunity cost in our uh in our decision makings and then the third principle is rational people think at the margin so marginal benefit marginal cost marginal cost is more important than average cost when we make a decision and the first principle is people respond to incentives so incentives using incentives is extremely important then uh next uh next week uh we will discuss the rest of six principles so i really want all of you to read uh the rest of chapter 1 and chapter 2.