Overview
This lecture introduces economics as a way of understanding everyday decisions, focusing on four major concepts: opportunity cost, sunk cost fallacy, marginal benefit/cost, and market equilibrium, using real-life examples like dating and ride-sharing.
Economics as a Decision-Making Lens
- Economics is not just about money, but a way to analyze choices in all areas of life.
- Economic thinking helps in understanding decisions in contexts like dating, transportation, and even personal relationships.
Fundamental Concepts of Economics
- Four core concepts covered: opportunity cost, sunk cost fallacy, marginal benefit/cost, and market equilibrium.
- These concepts help break down everyday decisions and evaluate alternatives.
Opportunity Cost
- Opportunity cost is what you give up when you choose one option over another.
- Example: Choosing to go on a date with one person means giving up the chance to date someone else.
Sunk Cost Fallacy
- Sunk cost fallacy is the mistake of considering past, unrecoverable costs in current decisions.
- Example: Continuing with a bad date just because you already spent time or money on it.
Marginal Benefit and Marginal Cost
- Marginal benefit refers to the additional gain from one more unit of a good or activity.
- Marginal cost is the extra cost incurred from one additional unit.
- Decisions should be made where marginal benefit equals marginal cost.
Market Equilibrium
- Market equilibrium occurs when supply meets demand, and prices settle at a point where both buyers and sellers agree.
- Real-life markets, like ride-sharing apps, naturally move toward equilibrium as choices and prices adjust.
Applying Economic Concepts to Daily Life
- Economic principles can be observed in unexpected places, from dating apps to fast food deals to Uber rides.
Key Terms & Definitions
- Opportunity cost — The value of the next best alternative forgone when a choice is made.
- Sunk cost fallacy — The error of factoring in past, unrecoverable expenses when making new decisions.
- Marginal benefit — The extra satisfaction or utility from consuming one more unit of something.
- Marginal cost — The extra cost from producing or consuming one more unit of something.
- Market equilibrium — The price point where the amount supplied equals the amount demanded.
Action Items / Next Steps
- Analyze a part of your life using these economic concepts and identify underlying market forces.
- Complete the assignment: observe and share how economics plays a role in non-obvious personal decisions.