Core Principles 1

So we're going to start our first unit, which is core principles, and I'm going to start us with a question. What is economics? Seems like a good place to start. So I want to ask you this question. Fill in this blank. Right now I would really like to have blank. So think about it. Well, one of the things that, when I ask this question in my in-person class, is one thing that I've noticed. Nobody ever has a nothing answer, right? Our desires are unlimited. No matter how great your life is going right now, there's always something you could like. Usually when I ask this question, I ask it in a way that I think is right. I ask it in a way that I think is right. I ask it in a way that I think is right. question in the morning the thing the answers i get are food and sleep some people ask for things some people want a girlfriend or boyfriend some people want more free time they want to go on a trip lots and lots of answers because our desires are unlimited there's always more more that you want. Our resources, however, are not, right? You can't have it all. So that's what economics is. This is sort of the dictionary definition. If you look up economics, you'll probably get something along this idea of the study of how people use their limited resources, right? You don't have an infinite amount of time or an infinite amount of money or infinite amount of abilities. You can't get everything you want. So economic is all about how people use their limited resources to try to achieve those unlimited goals. I've also seen it defined as the study of people in the ordinary business of life. And the authors of the textbook actually have this statement where they say every decision is an economic decision. So this idea that both of these statements hold is that this idea that we are constantly making economics decisions, that just living your ordinary life you are constantly doing economics. And the reason is we have to. have to make choices because we have limited resources. You can't have it all, right? If you think about the last time you had to make a choice, right, what did you have for breakfast this morning? You have limited resources, right? You have a limited amount of food, a limited amount of money if you're buying food, a limited appetite for how much you want to eat. You're deciding, you know, how to spend your summer. You have a limited amount of time this summer. You can't, you know, you can't do everything you want to do. You know, maybe there's a hundred different trips you want to take, but you don't have the time or money to take a hundred different trips. You have to make choices. And one of the interesting things that we see by that is economics is not just about money. It's not even mostly about money. Right. You make lots and lots of choices every day. And many of them have nothing to do with money. Right. Like, where am I going to how am I going to spend my afternoon? How much time am I going to spend? going to have studying? Which one of my friends do I want to hang out with? How often do I want to see my parents? How often do I want to talk to my parents? All sorts of questions. And economics is about choices. Specifically, the choices we make on how to use our limited resources. Because economics is about choices, economic research has something to say about all sorts of different questions. How can we prevent a recession? Should you be a stay-at-home parent? How should you choose what restaurant to go to? Should you become a criminal? we prevent discrimination? How do we increase kidney donations? Should children be required to use car seats? Do football coaches punt too often? All of these have economics papers written about them, believe it or not. And so I like to show this just because a lot of people start an economics class and think I'm going to spend the whole time talking about money and exchange rates or the stock market or something. What you see is there's actually economics touches on so many different parts of our life, which is why I think it's a really exciting course. And because economics is all about decisions, what are we going to do in this class? Well, we are going to learn how people in businesses make decisions, and we are going to predict what decisions they will make. So, for example, you are deciding what you want to major in. And many of you are at that stage now. I usually have a lot of first years and some second years. Some people come in with a declared major. Some people think they know what they want. Some people are completely undecided. Many of you will wind up changing your mind throughout your college career. And so this is a big decision you're going to have to make. And so what we want to think about is what are the factors that matter to you. And what's important to you when you're picking a major might be very different from the person who is sitting next to you. So some things that matter. You're interested in the subject, right? You're going to be taking classes on this for four years. Might as well find something you like. Maybe that's something you care about. Difficulty of classes, right? Maybe you don't want to have too hard of a major. You want to be able to graduate with good grades. You want to be able to graduate with good grades while still having fun and not having to spend all your time studying. Maybe on the other hand you're someone who really likes hard class and you think it's really fun to take a hard class and be challenged. Earnings after graduation, right? For most of us, the reason we're doing this is because we're doing it for the sake of our own good. We're doing it for the sake of our own good. We're doing it for the sake of our own good. We're doing it for the sake of our own good. We're doing it for the sake of our own good. We're doing it for the sake of our own good. We're doing it for the sake of our own good. We're doing it for the sake of our own good. We're doing it for the sake of our own good. We're going to college so we can get a good job when we're done, and so maybe you really care a lot about getting the highest possible salary when you've graduated. So what will you choose to major in? Well, now we want to do is think about how I expect you to make these decisions. And maybe we're not going to get into how you make this big decision like what to major in, but we're going to start off by thinking about the smaller decisions you're going to make. We're going to look at four core principles of good decision making. These are the principles that we expect you to use when you're making decisions. Probably you may have never heard the terms we're going to use. But when I start saying, oh, this is what this principle is, hopefully that'll sound familiar. Like, oh, yeah, that is kind of something that's going on in the back of my mind when I decide what I want to major in or how much, you know, whether I want to buy a cup of coffee this morning. So here is our first principle. It's called the cost benefit principle. So a little heads up, when you see, you have these little rectangles on the screen with kind of the shadow background thing and text within them. That's usually what we're going to see a definition. So here we're going to see is a definition. what exactly the court cost benefit principle is all about. Evaluate the full set of benefits and costs for any choice you face. And you wanna pursue that choice if the benefits are at least as large as the costs. And again, what we're going to see is, you know, maybe you've never really thought about when you were deciding what you wanted for breakfast, the costs and benefits of which kind of cereal to have. But we're going to see that this is the kind of what's going on in your mind often when you're making decisions. So let's suppose you walk into a coffee shop and are deciding whether to order coffee. So maybe you were headed to work or headed to school yesterday and you were with a friend and your friend was like, hey, let me duck into Starbucks, I want to grab something. And you are deciding whether you want to get anything. We will say the coffee costs $3. And so the cost, if we're thinking about the cost and benefit of coffee, we're going to say, well, the cost of the coffee is pretty straightforward. It's right on the menu. It's three bucks. The benefits of the cup of coffee are more difficult to quantify, right? So how much enjoyment are you getting from it? Well, maybe you enjoy the taste of the coffee, right? Good coffee, you know, you get it just how you want it with the amount of sugar and cream that you like. it tastes great. Alertness from the caffeine, right? You're getting ready to go to school, don't want to fall asleep, getting ready to go to work, don't want the boss to see you dozing off. So I mean, that's something you get some value from, benefits. Others, you know, maybe you just like having something in your hand as you're walking around. around. It gives you a chance to, you know, you and your friend can compare your orders and say what you like. You know, hey, I really like got this kind of coffee because I liked it. Something like that. Again, all sorts of benefits that maybe we can't quantify, or at least not easily. So let's think about how we can quantify these benefits, even though it seems like a funny idea of how much I like coffee. Well, how much are you willing to pay for a cup of coffee? Maybe you're willing to pay zero dollars. You don't like the taste of coffee. You think it tastes gross. if someone gives you a cup of coffee, you're not going to drink it. So maybe your willingness to pay is zero, right? I'm not going to pay anything for this coffee that I won't even drink. Maybe it's $3. Maybe it's $5. Maybe you really like coffee or you're really, really sleepy and know you're going to fall asleep at your job. and get fired if you don't get a cup of coffee and maybe your willingness to pay is very high. That amount, this dollar amount, is what we call your willingness to pay. And the cool part about this is this quantifies the benefits you get from that cup of coffee. So maybe this idea of how many dollars do I place on the taste of a nice cup of coffee that's nice and hot and has just the right amount of cream in it. Well, how do we quantify that? That's what the point of the willingness to pay is. It says, all right, well, if you're willing... to pay $3 for it, that essentially means that you must enjoy it $3 worth, right? That's the benefit you're getting from it because that's how much you're willing to pay. And so you should buy the cup of coffee if the benefit you get from the coffee is greater than or equal to the cost. Well we already know one part of this equation, right? Or this inequality. We know that the cost is $3. And now we know know. That means that you should buy the cup of coffee if your willingness to pay is at least $3. Now, one of the things that I want to get clear, and this is some of the big misconceptions that people have about economics that you sometimes get when you first start taking introductory classes. One thing I want to say is that the cost-benefit principle does not imply that people always... act selfishly. There's a way to kind of look at this sort of cynically, right? Oh, when I'm making a decision, all I care about are my benefits, how much enjoyment I get out of the coffee, how much alertness I get, and I make very selfish decisions and all I care about is my own benefits. Well, one of the things that the authors of the textbook say is they say the cost-benefit principle, it's only selfish if you are. What that means is if all of your benefits, when you're thinking about benefits, if you only care about yourself, then yes, the cost-benefit principle will show you to be selfish. However, most of us will think about people other than ourselves when you're calculating the benefits, right? What I mean by that is, you know, maybe you are thinking about you have some of your friends. over and you're thinking about whether or not you should buy a pizza. And probably when you do that, you're not just thinking about the benefit that I personally will get from eating three slices of pizza, right? Part of the benefits are, you know, I like my friends and if they're getting some good pizza, I'm going to benefit from that. Maybe you think I benefit from my friends, you know, appreciating that I did something nice for them. So the cost-benefit principle does not apply to people always act selfishly because often the kind of things that you consider to be better benefits, the things you care about, are helping out other people. The cost-benefit principle also does not imply that people never make mistakes, right? There's this idea that every time you make a decision, you do this math of benefits, you do this math of costs, and so you're always going to be making a wise decision. And if you don't make a wise decision, well then, you didn't follow the cost-benefit principle, and so economics has nothing to say to you. That is very much not true. In fact, economics has lots of... to say about why people start smoking, make poor financial decisions, and commit crimes, right? These are probably if you could think about people making purely rational cost-benefit decisions, you know, it's very hard to explain why someone would start smoking, right? Think of how expensive it is, think of how much how it is bad for your health, and it might but economics actually has lots to say about why people start smoking and why it is that you might be following the cost-benefit principle and really think you're doing the right thing. when you start smoking and you're 15 years old, but actually, you know, it turns out to be a probably a decision you regret, but it is still possible you followed the cost-benefit principle. So again, cost-benefit principle does not imply that everyone is selfish. It does not imply that nobody makes mistakes. So let's look at an example. Suppose an economist observes an individual doing something that seems to violate the cost-benefit principle. For example, giving money to charity. So she has two options, right, as the economist. She sees this person giving to charity. her first thought is, well, if we do the cost-benefit principle, the cost is however much money you gave to the charity, the benefit is zero. That's sort of the simplest way to look at it. If all you did was send a check to the charity, the charity didn't send you anything back, maybe we just say your benefit is zero. your cost was however much you sent benefit is zero why would you do this um and so there's two options you could throw our hands in the air say people are irrational they make choices that make no sense we can't predict their behavior economics doesn't make any sense for this person she clearly isn't the person who's donating to charity is not following any economic principles any principles of core decision making well we don't want to be there right that that doesn't let us gain very very many insights into people instead the plan I think is more interesting is let's investigate why this individual is giving to charity. What are the benefits that people get from giving to charities, right? They must be something because people give to charity. So a couple of the sort of the more cynical reasoning that you might say is that you enjoy talking to your friends about how generous you are, right? Listen, I gave to this charity not because I care a lot about this charity or because I'm an especially nice person, but I want to be able to tell people that I'm very... generous you know maybe I did one of those things were like you they have the list of the donors and you wanted to be like a gold level donor or something so everyone sees how generous you are. Another one is you feel good about yourself when you give. There's actually an economics term for this called warm glow. This idea that, you know, I gave this money to the charity and tonight when I go home, I'm gonna sit down, open up a book, turn on the TV, and just get to feel good about what a great person I am. And maybe that is, you know, again, maybe not the most positive viewpoint of a person who's only doing it because they get to feel good about themselves. But that's another option. Maybe you believe your gift will make a difference for a cause you care about, right? So maybe you're someone who cares a lot about the environment and you think that by giving your money you're going to make the world just a little bit of a cleaner place to live in and that's something you get enjoyment out of. So all of these are ways that someone could be giving to charity and very much following the cost benefit principle. Let's think a little more about this cost-benefit principle and how it could seem, we're going to see that's something that seems a little counterintuitive or a problem that's going to be hard for us to answer right now, and so we'll think about it in the next lecture. Cost-benefit principle says you should choose to go to college. if the benefits of college are greater than the costs of going to college? Well, there are probably multiple colleges that would have given you benefits that exceeded the total financial and time cost of attending. So if you're thinking about the cost of attending, of college, right? So you're here in college. We'll say a lot of you are probably planning to be in college for four years and then graduate. What are the costs? Well, there's a financial cost, right? Almost everyone is paying some amount in tuition, room and board. The other cost is this time cost. And we'll talk a lot more about this idea of the cost of your time later. But when you spend four years at Michigan State, that's four years you're not spending doing something else, right? It's, you're not probably not working full time for four years, right? You're probably, so if you hadn't gone to college, you ought to think about if I weren't here, I would be four years into my career. So that's another thing you're giving up. You're paying tuition, you're also giving up a lot of your time. So what we want to think about next time is we want to learn why MSU is actually the only college that had benefits greater than costs, right? Because most of you are only enrolled in Michigan State right now. Because even though it seems at first like, oh, well maybe there's lots of places where benefits have exceeded cost, cost. benefit principal says I should do something if benefits are greater than cost. Maybe I should be enrolled at 15 colleges right now. Well, next class again we're going to learn why that isn't actually the case, that MSU actually was the only college that had benefits greater than costs. Awesome! First class out of the way. Thanks everybody.

Right now I would really like to have blank. So think about it. Well, one of the things that, when I ask this question in my in-person class, is one thing that I've noticed. Nobody ever has a nothing answer, right?

Our desires are unlimited. No matter how great your life is going right now, there's always something you could like. Usually when I ask this question, I ask it in a way that I think is right. I ask it in a way that I think is right.

I ask it in a way that I think is right. question in the morning the thing the answers i get are food and sleep some people ask for things some people want a girlfriend or boyfriend some people want more free time they want to go on a trip lots and lots of answers because our desires are unlimited there's always more more that you want. Our resources, however, are not, right?

You can't have it all. So that's what economics is. This is sort of the dictionary definition.

If you look up economics, you'll probably get something along this idea of the study of how people use their limited resources, right? You don't have an infinite amount of time or an infinite amount of money or infinite amount of abilities. You can't get everything you want. So economic is all about how people use their limited resources to try to achieve those unlimited goals.

I've also seen it defined as the study of people in the ordinary business of life. And the authors of the textbook actually have this statement where they say every decision is an economic decision. So this idea that both of these statements hold is that this idea that we are constantly making economics decisions, that just living your ordinary life you are constantly doing economics.

And the reason is we have to. have to make choices because we have limited resources. You can't have it all, right? If you think about the last time you had to make a choice, right, what did you have for breakfast this morning?

You have limited resources, right? You have a limited amount of food, a limited amount of money if you're buying food, a limited appetite for how much you want to eat. You're deciding, you know, how to spend your summer. You have a limited amount of time this summer.

You can't, you know, you can't do everything you want to do. You know, maybe there's a hundred different trips you want to take, but you don't have the time or money to take a hundred different trips. You have to make choices.

And one of the interesting things that we see by that is economics is not just about money. It's not even mostly about money. Right. You make lots and lots of choices every day.

And many of them have nothing to do with money. Right. Like, where am I going to how am I going to spend my afternoon?

How much time am I going to spend? going to have studying? Which one of my friends do I want to hang out with? How often do I want to see my parents?

How often do I want to talk to my parents? All sorts of questions. And economics is about choices.

Specifically, the choices we make on how to use our limited resources. Because economics is about choices, economic research has something to say about all sorts of different questions. How can we prevent a recession?

Should you be a stay-at-home parent? How should you choose what restaurant to go to? Should you become a criminal? we prevent discrimination?

How do we increase kidney donations? Should children be required to use car seats? Do football coaches punt too often?

All of these have economics papers written about them, believe it or not. And so I like to show this just because a lot of people start an economics class and think I'm going to spend the whole time talking about money and exchange rates or the stock market or something. What you see is there's actually economics touches on so many different parts of our life, which is why I think it's a really exciting course. And because economics is all about decisions, what are we going to do in this class?

Well, we are going to learn how people in businesses make decisions, and we are going to predict what decisions they will make. So, for example, you are deciding what you want to major in. And many of you are at that stage now. I usually have a lot of first years and some second years. Some people come in with a declared major.

Some people think they know what they want. Some people are completely undecided. Many of you will wind up changing your mind throughout your college career. And so this is a big decision you're going to have to make. And so what we want to think about is what are the factors that matter to you.

And what's important to you when you're picking a major might be very different from the person who is sitting next to you. So some things that matter. You're interested in the subject, right? You're going to be taking classes on this for four years.

Might as well find something you like. Maybe that's something you care about. Difficulty of classes, right? Maybe you don't want to have too hard of a major. You want to be able to graduate with good grades.

You want to be able to graduate with good grades while still having fun and not having to spend all your time studying. Maybe on the other hand you're someone who really likes hard class and you think it's really fun to take a hard class and be challenged. Earnings after graduation, right? For most of us, the reason we're doing this is because we're doing it for the sake of our own good.

We're doing it for the sake of our own good. We're doing it for the sake of our own good. We're doing it for the sake of our own good.

We're doing it for the sake of our own good. We're doing it for the sake of our own good. We're doing it for the sake of our own good. We're doing it for the sake of our own good. We're doing it for the sake of our own good.

We're going to college so we can get a good job when we're done, and so maybe you really care a lot about getting the highest possible salary when you've graduated. So what will you choose to major in? Well, now we want to do is think about how I expect you to make these decisions. And maybe we're not going to get into how you make this big decision like what to major in, but we're going to start off by thinking about the smaller decisions you're going to make.

We're going to look at four core principles of good decision making. These are the principles that we expect you to use when you're making decisions. Probably you may have never heard the terms we're going to use. But when I start saying, oh, this is what this principle is, hopefully that'll sound familiar.

Like, oh, yeah, that is kind of something that's going on in the back of my mind when I decide what I want to major in or how much, you know, whether I want to buy a cup of coffee this morning. So here is our first principle. It's called the cost benefit principle. So a little heads up, when you see, you have these little rectangles on the screen with kind of the shadow background thing and text within them.

That's usually what we're going to see a definition. So here we're going to see is a definition. what exactly the court cost benefit principle is all about.

Evaluate the full set of benefits and costs for any choice you face. And you wanna pursue that choice if the benefits are at least as large as the costs. And again, what we're going to see is, you know, maybe you've never really thought about when you were deciding what you wanted for breakfast, the costs and benefits of which kind of cereal to have.

But we're going to see that this is the kind of what's going on in your mind often when you're making decisions. So let's suppose you walk into a coffee shop and are deciding whether to order coffee. So maybe you were headed to work or headed to school yesterday and you were with a friend and your friend was like, hey, let me duck into Starbucks, I want to grab something.

And you are deciding whether you want to get anything. We will say the coffee costs $3. And so the cost, if we're thinking about the cost and benefit of coffee, we're going to say, well, the cost of the coffee is pretty straightforward.

It's right on the menu. It's three bucks. The benefits of the cup of coffee are more difficult to quantify, right?

So how much enjoyment are you getting from it? Well, maybe you enjoy the taste of the coffee, right? Good coffee, you know, you get it just how you want it with the amount of sugar and cream that you like. it tastes great.

Alertness from the caffeine, right? You're getting ready to go to school, don't want to fall asleep, getting ready to go to work, don't want the boss to see you dozing off. So I mean, that's something you get some value from, benefits.

Others, you know, maybe you just like having something in your hand as you're walking around. around. It gives you a chance to, you know, you and your friend can compare your orders and say what you like.

You know, hey, I really like got this kind of coffee because I liked it. Something like that. Again, all sorts of benefits that maybe we can't quantify, or at least not easily. So let's think about how we can quantify these benefits, even though it seems like a funny idea of how much I like coffee.

Well, how much are you willing to pay for a cup of coffee? Maybe you're willing to pay zero dollars. You don't like the taste of coffee. You think it tastes gross.

if someone gives you a cup of coffee, you're not going to drink it. So maybe your willingness to pay is zero, right? I'm not going to pay anything for this coffee that I won't even drink. Maybe it's $3. Maybe it's $5.

Maybe you really like coffee or you're really, really sleepy and know you're going to fall asleep at your job. and get fired if you don't get a cup of coffee and maybe your willingness to pay is very high. That amount, this dollar amount, is what we call your willingness to pay. And the cool part about this is this quantifies the benefits you get from that cup of coffee.

So maybe this idea of how many dollars do I place on the taste of a nice cup of coffee that's nice and hot and has just the right amount of cream in it. Well, how do we quantify that? That's what the point of the willingness to pay is.

It says, all right, well, if you're willing... to pay $3 for it, that essentially means that you must enjoy it $3 worth, right? That's the benefit you're getting from it because that's how much you're willing to pay.

And so you should buy the cup of coffee if the benefit you get from the coffee is greater than or equal to the cost. Well we already know one part of this equation, right? Or this inequality. We know that the cost is $3. And now we know know.

That means that you should buy the cup of coffee if your willingness to pay is at least $3. Now, one of the things that I want to get clear, and this is some of the big misconceptions that people have about economics that you sometimes get when you first start taking introductory classes. One thing I want to say is that the cost-benefit principle does not imply that people always... act selfishly. There's a way to kind of look at this sort of cynically, right?

Oh, when I'm making a decision, all I care about are my benefits, how much enjoyment I get out of the coffee, how much alertness I get, and I make very selfish decisions and all I care about is my own benefits. Well, one of the things that the authors of the textbook say is they say the cost-benefit principle, it's only selfish if you are. What that means is if all of your benefits, when you're thinking about benefits, if you only care about yourself, then yes, the cost-benefit principle will show you to be selfish.

However, most of us will think about people other than ourselves when you're calculating the benefits, right? What I mean by that is, you know, maybe you are thinking about you have some of your friends. over and you're thinking about whether or not you should buy a pizza.

And probably when you do that, you're not just thinking about the benefit that I personally will get from eating three slices of pizza, right? Part of the benefits are, you know, I like my friends and if they're getting some good pizza, I'm going to benefit from that. Maybe you think I benefit from my friends, you know, appreciating that I did something nice for them. So the cost-benefit principle does not apply to people always act selfishly because often the kind of things that you consider to be better benefits, the things you care about, are helping out other people.

The cost-benefit principle also does not imply that people never make mistakes, right? There's this idea that every time you make a decision, you do this math of benefits, you do this math of costs, and so you're always going to be making a wise decision. And if you don't make a wise decision, well then, you didn't follow the cost-benefit principle, and so economics has nothing to say to you.

That is very much not true. In fact, economics has lots of... to say about why people start smoking, make poor financial decisions, and commit crimes, right?

These are probably if you could think about people making purely rational cost-benefit decisions, you know, it's very hard to explain why someone would start smoking, right? Think of how expensive it is, think of how much how it is bad for your health, and it might but economics actually has lots to say about why people start smoking and why it is that you might be following the cost-benefit principle and really think you're doing the right thing. when you start smoking and you're 15 years old, but actually, you know, it turns out to be a probably a decision you regret, but it is still possible you followed the cost-benefit principle. So again, cost-benefit principle does not imply that everyone is selfish.

It does not imply that nobody makes mistakes. So let's look at an example. Suppose an economist observes an individual doing something that seems to violate the cost-benefit principle. For example, giving money to charity. So she has two options, right, as the economist.

She sees this person giving to charity. her first thought is, well, if we do the cost-benefit principle, the cost is however much money you gave to the charity, the benefit is zero. That's sort of the simplest way to look at it.

If all you did was send a check to the charity, the charity didn't send you anything back, maybe we just say your benefit is zero. your cost was however much you sent benefit is zero why would you do this um and so there's two options you could throw our hands in the air say people are irrational they make choices that make no sense we can't predict their behavior economics doesn't make any sense for this person she clearly isn't the person who's donating to charity is not following any economic principles any principles of core decision making well we don't want to be there right that that doesn't let us gain very very many insights into people instead the plan I think is more interesting is let's investigate why this individual is giving to charity. What are the benefits that people get from giving to charities, right? They must be something because people give to charity.

So a couple of the sort of the more cynical reasoning that you might say is that you enjoy talking to your friends about how generous you are, right? Listen, I gave to this charity not because I care a lot about this charity or because I'm an especially nice person, but I want to be able to tell people that I'm very... generous you know maybe I did one of those things were like you they have the list of the donors and you wanted to be like a gold level donor or something so everyone sees how generous you are.

Another one is you feel good about yourself when you give. There's actually an economics term for this called warm glow. This idea that, you know, I gave this money to the charity and tonight when I go home, I'm gonna sit down, open up a book, turn on the TV, and just get to feel good about what a great person I am. And maybe that is, you know, again, maybe not the most positive viewpoint of a person who's only doing it because they get to feel good about themselves. But that's another option.

Maybe you believe your gift will make a difference for a cause you care about, right? So maybe you're someone who cares a lot about the environment and you think that by giving your money you're going to make the world just a little bit of a cleaner place to live in and that's something you get enjoyment out of. So all of these are ways that someone could be giving to charity and very much following the cost benefit principle.

Let's think a little more about this cost-benefit principle and how it could seem, we're going to see that's something that seems a little counterintuitive or a problem that's going to be hard for us to answer right now, and so we'll think about it in the next lecture. Cost-benefit principle says you should choose to go to college. if the benefits of college are greater than the costs of going to college? Well, there are probably multiple colleges that would have given you benefits that exceeded the total financial and time cost of attending. So if you're thinking about the cost of attending, of college, right?

So you're here in college. We'll say a lot of you are probably planning to be in college for four years and then graduate. What are the costs?

Well, there's a financial cost, right? Almost everyone is paying some amount in tuition, room and board. The other cost is this time cost. And we'll talk a lot more about this idea of the cost of your time later.

But when you spend four years at Michigan State, that's four years you're not spending doing something else, right? It's, you're not probably not working full time for four years, right? You're probably, so if you hadn't gone to college, you ought to think about if I weren't here, I would be four years into my career.

So that's another thing you're giving up. You're paying tuition, you're also giving up a lot of your time. So what we want to think about next time is we want to learn why MSU is actually the only college that had benefits greater than costs, right?

Because most of you are only enrolled in Michigan State right now. Because even though it seems at first like, oh, well maybe there's lots of places where benefits have exceeded cost, cost. benefit principal says I should do something if benefits are greater than cost. Maybe I should be enrolled at 15 colleges right now.

Well, next class again we're going to learn why that isn't actually the case, that MSU actually was the only college that had benefits greater than costs. Awesome! First class out of the way.

Thanks everybody.

Transcript for:Core Principles 1

Transcript for:
Core Principles 1