Assignment:
First Principles? ?
1. Which of the 9 Principles is being illustrated best in each of the following examples? ?In case we disagree on the "best" answer, explaining can help.
a. In the past, medical knowledge was very limited- and doctors would often operate independently (*check out work by Atul Gawande to learn about this). As medical knowledge has expanded, doctors have started to focus on narrow areas within health- so that we don't just have "doctors", but "Anesthesiologists", "Cardiologists" and "Pediatricians"-- and all the while health care has been improving tremendously. By focusing on individual tasks, various types of doctors can become especially talented in their area, rather than somewhat competent in most areas- and (in some ways) society benefits as a result.
b. The San Francisco government wants to reduce childhood obesity. To do so, they ban the offering of free toys with unhealthy children's meals. In response, restaurants offer toys for 10 cents with children's meals- making the ban effectively useless. While the government's intention was to get restaurants to sell less unhealthy food to kids, the policy did not sufficiently change the fact that it was in the self-interest of restaurants to sell unhealthy food to kids and to use toys as a means of making that happen.
c. Barack Obama announces that he's opening up his Presidential Library in your community. As several investors start bidding on individual plots of land, the real estate market initially destabilizes. In response to the increased demand, current owners raise their sales prices- until
the amount of people wanting to buy the land equals the amount of people wanting to sell the land, and the price of each plot of land (after taking quality into account) is approximately the same across plots of land. Once prices are approximately the same again, the real estate
market reaches a stable point where no one has any reason to change their behavior.
d. In rural African villages, people are underinvesting in health care, because they don't appreciate that personal health investment (like getting dewormed) indirectly improves the wellbeing of society by reducing the spread of disease. Thus, if people invested more in health care, the broader society as a whole would be better off. To improve the wellbeing of the broader society, the government subsidizes health care so that people buy more of it.
2. Education economists estimate that an additional year of education leads to about an 8% in one's annual income on average. Thus, many people conclude that college is definitely beneficial and that people are underinvesting in their schooling. Nevertheless, discussion of education suggests that people don't fully appreciate everything they're giving up by spending 4+ years of their life in school. In class, we mentioned the idea of opportunity cost as what one gives up in a course of action -- and said it often included both explicit costs and implicit costs. What's an example of an explicit cost of going to college? What's an example of an implicit cost of going to college?
3. Below you have a table showing the marginal benefit and marginal cost of various amounts of tacos. The marginal benefit of each taco is a measure of what you gain from having each additional taco. The marginal cost is what you have to give up to have each additional taco. How many tacos should you buy? Explain.
