Econ 207 Class #1 on 1/19/12

• Resources can be scarce even if you have an infinite amount of money because money can't always buy everything.
• Every choice involves scarcity considerations
• Efficiency=giving people as much of something as they desire/want
• Equilibrium- there is nothing you can do to improve your situation. In short, it is as good as it can be. It doesn't mean your situation is perfect, but that it can't be any better than it already is.
• Cost of activity- how much pain/inconvenience you would be willing to endure to do an action
• Consider the money and getting up to change song example. Say Rizzo is sitting on the ground comfortably with his two cats. A song is playing that he doesn't like. Should he get up to change the song if someone is willing to pay him money to do so?
• Well, at a certain amount of money, you will alter your decision. At one penny, he may not be willing to get up. At $1,000, he might. There is a certain amount of money that makes you change your mind.
• Also have to consider health: the healthier he is, the less money he would demand to get up because the less strain he'd be putting on his body. If his back hurt, that would affect his decision and he would demand more money.
• Also, one should consider how income affects the decisions- if someone is rich, they would demand more money to get up. If someone desperately needs money, he will demand less money to get up.
• Comparative Statics- Understanding why people make certain decisions. 
• It is important to note that when considering that cost of activity, we need to move away from explanations that are reasoned/backed up by one's preferences. Saying someone did something (like get up to the change the music) because that is what they value is not sufficient explanation anymore.
• There was the Super Bowl commercial for the company that was not even in existence yet. Prof. Rizzo explained that economically, the business maybe did this because the company wanted to incur a large sunk cost before it started up the business to truly motivate itself to work hard and make back the loss in the future, which in turn would mean the company was successful.
• We need models to tell us if something is a reliable/unreliable idea. Thus, we use this to determine how to be a good price theorist:
1. Formulate the economic problem
1. Understand what the desires of those people are- in other words, what are they trying to maximize?
2. What are all the constraints they are facting?
2. Optimization- people are rational if they have goals and attempt to navigate around constraints
3. Equilibrium- understanding where peoples/ behaviors will go based on the actions they have thus far taken