Lesson Overview
Chapter 1 (continued) First Principles
10 Microeconomic Principles
Testing Rationality
Food Stamps to Alcoholics
Social Security and Medicare
Disaster Relief
US Postal Service
Child Tax Credits
Crack Babies
Controversy: Handicapped Parking
Summary
Review Questions
BA 210 Lesson I.2 Controversial Rationality
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10 Microeconomic Principles
Most microeconomic conclusions are summarized by 10
principles. Those principles help consumers make satisfying
choices, help managers make profitable decisions, and help
governments make effective public policies.
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10 Microeconomic Principles
Principle 1: Everyone has to make choices about what to do and
what not to do.
Yes, there are two paths you can go by
But in the long run
There's still time to change
The road you're on
--- Stairway to Heaven, Led Zeppelin, voted best band ever.
Individual choice is the basis of economics --- if it doesn’t
involve choice, it isn’t economics.
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10 Microeconomic Principles
Principle 2: The reason choices must be made is that resources --anything that can be used to produce something else --- are
scarce.
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10 Microeconomic Principles
Principle 3: Because you must choose among limited alternatives,
the true cost of anything is what you must give up to get it --- the
opportunity cost.
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10 Microeconomic Principles
Principle 4: Many economic decisions involve questions not of
“whether” but of “how much” --- how many times to go to
Medieval Times in one year and is the Museum of Torture worth
the extra two dollars, how much time to spend on homework, … .
Such decisions must be taken by performing a trade-off at that
margin --- by comparing the costs and benefits of doing a bit
more or a bit less. Decisions of this type are called marginal
decisions, and the study of them, marginal analysis, plays a
central role in economics.
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10 Microeconomic Principles
Principle 5: The study of how people should make decisions is
also a good way to understand actual behavior. Individuals
usually exploit opportunities to make themselves better off. If
opportunities change, so does behavior: people respond to
incentives.
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10 Microeconomic Principles
Principle 6: Interaction --- the success of my choices depend on
your choices, and vice versa --- adds another level to economic
understanding. When individuals interact, the end result may be
different from what anyone intends. For example, an individual
farmer may grow more corn to gain individual profit, but when
every farmer grows more corn, prices fall and all profits may fall.
(This is called a prisoners’ dilemma.)
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10 Microeconomic Principles
Principle 7: The reason for interaction is that there are gains from
trade: by engaging in the trade of goods and services with one
another, the members of an economy can all be made better off.
Underlying gains from trade are the advantages of specialization,
of having individuals specialize in the tasks they are relatively
good at. (Being absolutely the best at something is not important
to trade.)
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10 Microeconomic Principles
Principle 8: Economies normally move toward equilibrium --- a
situation in which no individual can make himself better off by
taking a different action.
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10 Microeconomic Principles
Principle 9: An economy is efficient if all opportunities to make
some people better off without making other people worse off are
taken. Resources should be used as efficiently as possible to
achieve society’s goals. But efficiency is not the only way to
evaluate an economy: equity, or fairness, is also desirable. And
unless one is careful, there is a trade-off between equity and
efficiency. For example, when you give food or shelter to a
homeless person, you reduce their incentive to take care of
themselves and, so, create inefficiency.
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10 Microeconomic Principles
Principle 10: Markets usually lead to efficiency, with some welldefined exceptions. And when markets fail and do not achieve
efficiency, government intervention can improve society’s
welfare. For example, governments can tax people that hurt
others by their driving, noise, smoking, or drinking.
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Testing Rationality
One reason economists disagree is over which assumptions are
appropriate. Since all assumptions (commodities are all that
matter, perfect selfishness, rationality) simplify reality, and are
only approximately true, two economists can disagree about
which assumptions are more accurate --- and therefore, they can
arrive at different conclusions.
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Testing Rationality
When determining effective public policy to help the poor, the
most often debated assumption is consumer rationality.
Consumers are assumed to be perfect calculators and flawless
followers of those choices that are in their own best interests.
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Testing Rationality
Extra Credit: Identify some irrational behavior, like maintaining
unrealistic expectations, disorganization, or extravagance. And
determine whether such irrationality is more common among the
poor.
Are the poor more likely to play the lottery? more likely to not
plan expenses and maintain a bank account, and so require
expensive check-cashing services? more likely to buy
extravagant items they cannot afford, and so eventually sell them
at a loss to a pawn shop?
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Food Stamps to Alcoholics
What gift should you give to the needy?
• A gift-in-kind is a gift of a good (like a bike).
• Why do people give gifts in kind?
• What gifts do kids want from relatives they do not know?
• What gift should a policymaker give someone that fits the
economic assumption of rationality and the assumption that
commodities are all that matter?
• How should a parent respond to a child asking for a coke in a
restaurant?
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Food Stamps to Alcoholics
Consider three public policies designed to help a group of needy
people by giving them a gift in kind of a particular commodity
(food, medical care, …). In each case, the central issue that
defends or critiques the policy is whether people in that needy
group are rational.
If a needy person is rational, or as rational as the policymakers,
then revealed preference theory concludes the most effective gift
is cash, rather than a gift of a particular commodity. For
example, giving a particular $20 item from Target (say, the
Underworld Vampire Trilogy on DVD) can never make someone
happier than a gift of $20 cash. And if the $20 cash were used for
any other item, then that chosen item is preferred.
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Food Stamps to Alcoholics
The United States Supplemental Nutrition Assistance Program
(SNAP), historically and commonly known as the Food Stamp
Program, is a federal-assistance program that provides assistance
to low- and no-income people and families living in the U.S.
Almost by definition, an alcoholic is not rational. And without
the assumption of rationality, economists lose the revealedpreference conclusion that the most effective gift is cash, rather
than a gift of food. The food stamp program can thus be
defended if policymakers believe the target needy group of lowand no-income people and families living in the U.S. are
irrational, like alcoholics.
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Social Security and Medicare
Medicare is a social insurance program administered by the
United States government, providing health insurance coverage
to people who are aged 65 and over, or who meet other special
criteria.
Unless the United States government believes most seniors are
not rational, revealed preference concludes a more effective gift
is cash, rather than a gift of health care. Some senior would
prefer trading some care, say by waiting in longer lines for
medicine, in exchange for Social Security benefits or cash for a
cell phone to call their kids.
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Social Security and Medicare
Social Security is a social insurance program funded through
dedicated payroll taxes called Federal Insurance Contributions
Act (FICA). The main part of the program is abbreviated OASDI
(Old Age, Survivors, and Disability Insurance). Benefits are paid
for retirement, disability, survivorship, and death, which are the
four main benefits provided by traditional private-sector pension
plans. In 2004 the U.S. Social Security system paid out almost
$500 billion in benefits. By dollars paid, the U.S. Social Security
program is the largest government program in the world and the
single greatest expenditure in the federal budget, with 20.8% for
social security.
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Social Security and Medicare
Although Social Security cash payments give more choices to
seniors than the gift-in-kind of Medicare, Social Security is still a
type of gift-in-kind because it only raises old-age consumption.
Think of young-age and old-age consumption as two different
commodities X and Y. Social Security cash payments are like a
gift-in-kind of commodity Y, paid for by reduced good X.
Unless the United States government believes most people are
not rational in their choice between young-age and old-age
consumption, revealed preference concludes a more effective gift
is cash to young people, rather than to seniors. Some seniors
alive today would have preferred trading some old-age
consumption in exchange for cash payments or lower taxes when
they were younger (and more vigorous).
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Disaster Relief
Disaster Relief
In 2008, New Orleans’ levee system is still being rebuilt after
Katrina at a cost of $17.5 billion, and Hurricane Gustav will add
to the financial strain of reconstructing a region still reeling from
that devastation three years ago.
Unless the United States government believes most people in
New Orleans are not rational in their consumer choices, revealed
preference concludes cash is a more effective gift than a levy. At
a cost of less than $17.5 billion, every person in New Orleans
could have been given suitcases and enough cash to happily
relocate above sea level, either using some of the cash to live in
safer areas of New Orleans or leaving the area altogether. And
those that remain in New Orleans, could do so at their own risk.
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U.S. Postal Service
What gift should you give to the needy?
• A subsidy is a partial gift-in-kind. Rather than giving a good
free (like a free bike), the purchase cost is reduced.
• What gift should a policymaker give someone that fits the
economic assumption of rationality and the assumption that
commodities are all that matter?
• Subsidies can be defended or critiqued just like gifts in kind.
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U.S. Postal Service
Consider three public policies designed to help a group of needy
people by giving them a subsidy of a particular commodity (food,
medical care, …). In each case, the central issue that defends or
critiques the policy is whether people in that needy group are
rational.
If a needy person is rational, or as rational as the people
policymakers, then revealed preference theory concludes the
most effective gift is cash, rather than a gift of a subsidy. For
example, giving a $10 gift card at Target can never make
someone happier than a gift of $10 cash. And if the $10 cash
were used for any item not at Target, then that chosen item is
preferred.
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U.S. Postal Service
The United States Postal Service is obligated to serve all
Americans, regardless of geography, at uniform price and quality.
Is the United States Postal Service efficient? That is, are all
opportunities taken to make some people better off without
making other people worse off?
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U.S. Postal Service
Value of Letters
Question: Suppose you live in
to Fullerton
to Austin
Los Angeles and have a relative
Value of Letter #1
$0.90
$0.50
in Fullerton (California) and a
Value of Letter #2
$0.30
$0.15
relative in Austin (Texas).
Value of Letter #3
$0.05
$0.05
Value of Letter #4
Measure the value to you of
$0.00
$0.00
writing them letters by the amount you would be willing to pay to
send them each a letter. Suppose they do not value your letters
but you value writing them letters as in the table above. And
suppose the cost to the U.S. Postal Service of delivering a letter
to Fullerton is 24 cents, and the cost to Austin is 64 cents.
Would it be efficient to charge, as is the case, 44
cents for each letter to Fullerton and 44 cents for each letter to
Austin? That is, do those prices lead to efficiency?
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U.S. Postal Service
Value of Letters
Answer: Step 1: Use the
to Fullerton
to Austin
economic principle that markets,
Value of Letter #1
$0.90
$0.50
without taxes or subsidies or any Value of Letter #2
$0.30
$0.15
other government intervention, Value of Letter #3
$0.05
$0.05
Value of Letter #4
lead to efficiency, meaning all
$0.00
$0.00
opportunities to make some people better off without making
other people worse off are taken. In the present case, competition
in the marketplace for the delivery for each letter drives the price
equal to the cost to the U.S. Postal Service of delivery. That is,
the market price is 24 cents for each letter to Fullerton and 64
cents for each letter to Austin. At those market prices, you would
choose to send Letters #1 and #2 to Fullerton, but zero letters to
Austin.
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U.S. Postal Service
Value of Letters
Step 2: At the non-market prices
to Fullerton
to Austin
of 44 cents for each letter to
Value of Letter #1
$0.90
$0.50
Fullerton and 44 cents for each Value of Letter #2
$0.30
$0.15
letter to Austin, determine which Value of Letter #3
$0.05
$0.05
letters you would choose to send. Value of Letter #4
$0.00
$0.00
That is, Letter #1 to Fullerton and Letter #1 to Austin.
Step 3: Conclude that since the non-market prices lead to
different letters sent than at the efficient market prices, it would
not be efficient to charge those non-market prices.
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U.S. Postal Service
Value of Letters
Comment 1: Going further than
to Fullerton
to Austin
the original question, to
Value of Letter #1
$0.90
$0.50
demonstrate inefficiency at
Value of Letter #2
$0.30
$0.15
non-market prices, which makes Value of Letter #3
$0.05
$0.05
you choose to sent only Letter #1 Value of Letter #4
$0.00
$0.00
to Fullerton, show not all opportunities are taken to make some
people better off without making other people worse off.
Specifically, if you sent Letter #2 to Fullerton at a price between
$0.24 and $0.30, then you would be better off and the Post Office
(taxpayers) would be better off and no one else would care (or be
worse off).
Comment 2: There is a 20 cent tax to Fullerton and 20 cent
subsidy to Austin, so the Post Office balances its budget when
one letter is sent to each place. But the non-market prices are still
inefficient.
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Child Tax Credits
The United States Child Tax Credit reduces tax liability. For
many families, the child tax credit will exceed their tax liability.
It is available to taxpayers who have a “qualifying child.” A
person is a “qualifying child” if he or she has not attained the age
of 17 by the end of the taxable year and the taxpayer can claim a
dependency exemption for the child and the child is the
taxpayer’s son or daughter (or descendent of either), stepson or
stepdaughter (or descendent of either), or eligible foster child.
Are Child Tax Credits efficient? That is, are all
opportunities taken to make some people better off without
making other people worse off?
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Child Tax Credits
Child tax credits are a subsidy if we consider children to be
commodities. So unless the government believes most
prospective parents are not rational in their consumer choices,
including procreation, then cash is a more effective gift than a
child tax credit.
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Child Tax Credits
Question: Measure the value to you and
your spouse of having kids by the amount
you would be willing to pay each year to
raise them. And suppose the cost or raising
kids is $3,500 per kid each year.
Value of Kids
Per year
Value of Kid #1
Value of Kid #2
Value of Kid #3
Value of Kid #4
$5,000
$4,000
$2,000
$1,000
Would it be efficient if the government offered a child tax credit
of $2,000 per kid each year?
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Child Tax Credits
Value of Kids
Answer: Step 1: Use the
Per year
economic principle that markets,
Value of Kid #1
$5,000
without taxes or subsidies or any
Value of Kid #2
$4,000
other government intervention,
Value of Kid #3
$2,000
Value of Kid #4
lead to efficiency, meaning all
$1,000
opportunities to make some people better off without making
other people worse off are taken. In the present case, competition
in the marketplace for the goods needed to raise kids drives the
price equal to the $3,500 cost of raising kids. At that market
price, you would choose to have Kids #1 and #2.
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Child Tax Credits
Value of Kids
Step 2: With the child tax credit of $2,000
Per year
per kid, determine which letters you would
Value of Kid #1
$5,000
choose to have. That is, the price of kids
Value of Kid #2
$4,000
falls from $3,500 per kid to $1,500 per kid. Value of Kid #3
$2,000
Value of Kid #4
So, you would choose to have Kids #1
$1,000
and #2 and #3.
Step 3: Conclude that since the child tax credit leads to different
numbers of kids than at the efficient market prices, the child tax
credit is not efficient.
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Child Tax Credits
Value of Kids
Comment: Going further than the original
Per year
question, to demonstrate inefficiency with
Value of Kid #1
$5,000
the child tax credit, which makes you
Value of Kid #2
$4,000
choose Kids #1 and #2 and #3, show not all Value of Kid #3
$2,000
Value of Kid #4
opportunities are taken to make some
$1,000
people better off without making other people worse off.
Specifically, if after Kids #1 and #2, the government replaced the
child tax credit with a gift of $2,000 per year, then you would
have to pay the full $3,500 for Kid #3, so you decline. The net
happiness of $2,000-$1,500 = $500 per year that you received
from Kid #3 under the child tax credit has now been increased to
a net happiness of $2,000 cash per year.
Replacing the tax credit with cash thus makes your family better
off (by $1,500 per year) without making other people worse off.
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Crack Babies
In addition to the child tax credit, government subsidies for
raising children include
 Dependency exemptions. Each child or other dependent you
claim on your 2009 tax return will knock $3,650 off your
taxable income.
 Dependent-care credits. Payments made to care for a child
under the age of 13, or other qualifying dependent, while you
work can earn you a tax credit from $600 (for one dependent)
up to $2100 (for two or more dependents).
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Crack Babies
What if prospective parents are considered irrational? What if
they are on crack?
•
•
•
•
Project Prevention (founded and formerly known as Children Requiring a Caring
Community or C.R.A.C.K.) is an American non-profit organization which pays
drug addicts $200 for volunteering to receive long-term birth control or
sterilization. As of January 2006, the amount offered has been increased to $300.
Barbara Harris founded the organization in 1997 after she and her husband adopted
four children from a drug-addicted mother. After the experience of helping the
children through withdrawal and other health problems, she attempted to have
legislation passed in California which would have mandated long-term birth control
for mothers who gave birth to drug-addicted babies. After this failed, she opted
instead to start what is now called Project Prevention.
Despite the fact that all patients are volunteers, the organization has incited a large
amount of controversy. Some claim that it is a human right to have children that
should not be restricted. Critics also make comparisons to the eugenics (selective
breeding) movement of the early 20th century.
As of July 16, 2006, Project Prevention has paid and treated 1854 women and 27
men.
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Crack Babies
Project prevention is controversial precisely because crack
addicts are considered irrational.
• Offering money to a rational person cannot hurt them because
they could just say no.
• Debates about project prevention are sometimes obscured by
euphemisms for irrationality, calling crack addicts
“vulnerable” or “exploitable”.
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Controversy: Handicapped Parking
Controversy: Handicapped Parking
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Controversy: Handicapped Parking
In the United States, disabled parking permits generally take the form of either
specially marked license plates or a placard that hangs from the rear-view
mirror. Plates are generally used for disabled drivers on their personal vehicle,
while the portable placard can be moved from one vehicle to another with the
disabled person, both when driving or when being transported by another
driver.
The medical requirements to obtain a permit vary by state, but usually are
confined to specific types disabilities or conditions. These as a general rule
include the use of any assistive device such as a wheelchair, crutches, or cane,
as well as a missing leg or foot. Many states also include certain
cardiovascular conditions, respiratory problems, and conditions that cause pain
while ambulating or otherwise require the person to rest after walking a very
short distance. About half of US states (26) include blindness as a disability
that can obtain a placard (for use as a passenger) and 14 states include a
missing or maimed hand. Four states include deafness, and only 2 states
(Virginia and New York) include mental illness or developmental disabilities.
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Controversy: Handicapped Parking
Question: Is Handicapped Parking efficient? That is, are all
opportunities taken to make some people better off without
making other people worse off?
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Controversy: Handicapped Parking
Answer: Handicapped Parking permits are a gift-in-kind. So
unless the government believes most handicapped people are not
rational in their consumer choices, then cash is a more effective
gift than a handicapped parking space.
What if the law were changed an handicapped people could sell
or rent their special parking permits? Might some choose to sell
to some rich Pepperdine students, and spend a few more minutes
each day using their wheelchair, crutches, or canes to get to class.
Those that choose to sell and those that choose to buy are made
better off without making other people worse off.
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Summary
Summary
1. When determining effective public policy to help the poor,
the most often debated assumption is consumer rationality.
2. If a needy person is rational, or as rational as policymakers,
then revealed preference theory concludes the most effective
gift is cash, rather than a gift-in-kind or a subsidy of a
particular commodity.
3. Food Stamps, Social Security, Medicare, disaster relief, U.S.
Postal Service uniform pricing, child tax credits, aid to crack
babies, and Handicapped Parking permits are examples of
gifts-in-kind or subsidies. As such, their only defense is if
the target needy group is irrational.
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Review Questions
Review Questions
 You should try to answer some of the following questions
before the next class.
 You will not turn in your answers, but students may request
to discuss their answers to begin the next class.
 Your upcoming Exam 1 and cumulative Final Exam will
contain some similar questions, so you should eventually
consider every review question before taking your exams.
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Review Questions
Value of Letters
Question 1: Suppose you live in
to Fullerton
to Austin
Los Angeles and have a relative
Value of Letter #1
$0.90
$0.35
in Fullerton (California) and a
Value of Letter #2
$0.15
$0.15
relative in Austin (Texas).
Value of Letter #3
$0.05
$0.05
Value of Letter #4
Measure the value to you of
$0.00
$0.00
writing them letters by the amount you would be willing to pay to
send them each letter. Considering just a simple possibility,
suppose they do not value your letters but you value writing them
letters as in the table above. Further, suppose the cost to the U.S.
Postal Service of delivering a letter to Fullerton is 10 cents, and
the cost to Austin is 90 cents.
Would it be efficient to charge, as is the case, 44
cents for each letter to Fullerton and 44 cents for each letter to
Austin? That is, do those prices lead to efficiency?
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Review Questions
Value of Letters
Answer 1: Step 1: Use the
to Fullerton
to Austin
economic principle that markets,
Value of Letter #1
$0.90
$0.35
without taxes or subsidies or any Value of Letter #2
$0.15
$0.15
other government intervention, Value of Letter #3
$0.05
$0.05
Value of Letter #4
lead to efficiency, meaning all
$0.00
$0.00
opportunities to make some people better off without making
other people worse off are taken. In the present case, the market
for the delivery for each letter drives the price equal to the cost to
the U.S. Postal Service of delivery. That is, the market price is 10
cents for each letter to Fullerton and 90 cents for each letter to
Austin. At those market prices, you would choose to send Letters
#1 and #2 to Fullerton, but zero letters to Austin.
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Review Questions
Value of Letters
Step 2: At the non-market prices
to Fullerton
to Austin
of 44 cents for each letter to
Value of Letter #1
$0.90
$0.35
Fullerton and 44 cents for each Value of Letter #2
$0.15
$0.15
letter to Austin, determine which Value of Letter #3
$0.05
$0.05
letters you would choose to send. Value of Letter #4
$0.00
$0.00
That is, Letter #1 to Fullerton, but zero letters to Austin.
Step 3: Conclude that since the non-market prices lead to
different letters sent than at the efficient market prices, it would
not be efficient to charge those non-market prices.
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Review Questions
Value of Letters
Value of Letter #1
Value of Letter #2
Value of Letter #3
Value of Letter #4
to Fullerton
to Austin
$0.90
$0.15
$0.05
$0.00
$0.35
$0.15
$0.05
$0.00
Comment: Going further than the original question, to
demonstrate inefficiency at non-market prices, which makes you
choose to sent only Letter #1 to Fullerton, show not all
opportunities are taken to make some people better off without
making other people worse off. Specifically, if you sent Letter #2
to Fullerton at a price between $0.10 and $0.15, then you would
be better off and the Post Office (taxpayers) would be better off
and no one else would care (or be worse off).
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Review Questions
Value of Letters
Question 2: Suppose you live in
to Fullerton
to Austin
Los Angeles and have a relative
Value of Letter #1
$0.90
$0.35
in Fullerton (California) and a
Value of Letter #2
$0.15
$0.15
relative in Austin (Texas).
Value of Letter #3
$0.05
$0.05
Value of Letter #4
Measure the value to you of
$0.00
$0.00
writing them letters by the amount you would be willing to pay to
send them each letter. Considering just a simple possibility,
suppose they do not value your letters but you value writing them
letters as in the table above. Further, suppose the cost to the U.S.
Postal Service of delivering a letter to Fullerton is 10 cents, and
the cost to Austin is 90 cents.
Would it be efficient to charge, as is the case, 7
cents for each letter to Fullerton and 50 cents for each letter to
Austin? That is, do those prices lead to efficiency?
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Review Questions
Value of Letters
Answer 2: Step 1: Use the
to Fullerton
to Austin
economic principle that markets,
Value of Letter #1
$0.90
$0.35
without taxes or subsidies or any Value of Letter #2
$0.15
$0.15
other government intervention, Value of Letter #3
$0.05
$0.05
Value of Letter #4
lead to efficiency, meaning all
$0.00
$0.00
opportunities to make some people better off without making
other people worse off are taken. In the present case, the market
for the delivery for each letter drives the price equal to the cost to
the U.S. Postal Service of delivery. That is, the market price is 10
cents for each letter to Fullerton and 90 cents for each letter to
Austin. At those market prices, you would choose to send Letters
#1 and #2 to Fullerton, but zero letters to Austin.
BA 210 Lesson I.2 Controversial Rationality
50
Review Questions
Value of Letters
Step 2: At the non-market prices
to Fullerton
to Austin
of 7 cents for each letter to
Value of Letter #1
$0.90
$0.35
Fullerton and 50 cents for each Value of Letter #2
$0.15
$0.15
letter to Austin, determine which Value of Letter #3
$0.05
$0.05
letters you would choose to send. Value of Letter #4
$0.00
$0.00
That is, Letters #1 and #2 to Fullerton, but zero letters to Austin.
Step 3: Conclude that since the non-market prices lead to the
same letters sent as at the efficient market prices, it would be
efficient to charge those non-market prices.
Comment: The general conclusion from both Questions 1 and 2
is market prices without taxes or subsidies or any other
government intervention, always lead to efficiency for any
individual, but non-market prices might or might not lead to the
same efficient outcome for a particular individual.
BA 210 Lesson I.2 Controversial Rationality
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Review Questions
Reminder from Lesson I.1: Follow the link
http://faculty.pepperdine.edu/jburke2/ba210/PowerP1/Set1Answers.pdf
for review questions for Lessons I.1 (last time) and I.2 that practice these
skills:
 Identify and compute opportunity costs.
 Use marginal analysis to make a decision by comparing the marginal benefit
to the marginal cost: increase quantity as long as the marginal benefit is
greater than marginal cost.
 Describe how a voluntary trade makes a rational person better off (happier,
more satisfied, …)
 Describe trade when one party is relatively better at producing Good X than
another party, and relatively worse at producing Good Y.
 Describe and identify an equilibrium as a rest point, or stationary point.
 Describe and identify efficiency as when all opportunities for improvement
without hurt are exhausted.
 Show how incentives affect decisions.
 Describe how incentives can restore efficiency.
BA 210 Lesson I.2 Controversial Rationality
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BA 210
Introduction to Microeconomics
End of Lesson I.2
BA 210 Lesson I.2 Controversial Rationality
53