Introduction to Economic Analysis - R. Preston McAfee  ## Metadata - Author: **R. Preston McAfee** - Full Title: Introduction to Economic Analysis - Category: #books - Tags: #economic ## Highlights - In contrast, cost-benefit analysis weighs the gains and losses to different individuals and suggests carrying out changes that provide greater benefits than harm. (Location 137) - The opportunity cost of spending $17 on a CD is what you would have done with the $17 instead, (Location 164) - If you watch a movie to the end, long after you become convinced that it stinks, you have exhibited the sunk cost fallacy. (Location 231) - When prices for home heating oil rise in the winter, usually the reason is that the weather is colder than normal and as a result, demand is higher than usual. (Location 254) - An increase in supply comes about from a fall in the marginal cost (Location 508) - The elasticity of supply is analogous to the elasticity of demand, in that it is a unit-free measure of the responsiveness of supply to a price change, and is defined as the percentage increase in quantity supplied resulting from a small percentage increase in price. (Location 611) - Bob and Ann can accomplish this by trading. At a “one for one” price, Bob can produce 120 hors d’oeuvres, and trade 60 of them for 60 ounces of vegetables. This is better than producing the vegetables himself, which netted him only 40 of each. Similarly, Ann produces 120 ounces of vegetables, and trades 60 of them for 60 hors d’oeuvres. This trading makes them both better off. (Location 696) - The goods that are traded internationally embody the factors of production of the producing nations, and it is useful to think of international trade as directly trading the inputs through the incorporation of inputs into products. (Location 790) - The purchase of soybeans by Japanese drives up the value of American land, and drives down the value of Japanese land by giving an alternative to its output, leading toward equalization of the value of the land across the nations. (Location 797) - In this century, the large expenditure occurred during World War II, when about 50% of GDP was spent by the government, and 37% of GDP went to the armed forces. (Location 1047) - Partnerships share profits according to a formula (some equally by partner, some assigning shares or points to partners so that ‘rainmakers’ who generate more of the business obtain a larger share of the profits) and usually all are liable for losses incurred by the partnership. Thus, if a partner in a law firm steals a client’s money and disappears, the other partners are generally responsible for the loss. (Location 1203) - In contrast, a corporation is, by a legal fiction, a person, which means a corporation itself can incur debt and the responsibility for repayment of that debt is with the corporation, not with the officers or owners of the corporation. (Location 1206) - The marginal product of an input is just the derivative of the production function with respect to that input. (Location 1287) - Traditionally, economists viewed labor as quickly adjustable, and capital equipment as more difficult to adjust. That is certainly right for airlines – obtaining new aircraft is a very slow process – and for large complex factories, and for relatively low-skilled and hence substitutable labor. On the other hand, obtaining workers with unusual skills is a slower process than obtaining warehouse or office space. (Location 1309) - An important insight of profit maximization is that it implies minimization of costs of yielding the chosen output, that is, profit-maximization entails efficient production. (Location 1454) - An economy of scale arises when total average cost falls as the number of units produced rises. (Location 1604) - At the new, short-run equilibrium, price exceeds the long-run supply cost. This higher price attracts new investment in the industry. It takes some time for this new investment to increase the quantity supplied, but over time the new investment leads to increased output, and a fall in the price, (Location 1667)