Economics for Engineers - Part I
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Transcript of Economics for Engineers - Part I
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Economics for Engineers – Part I Mohammad Tawfik
Economics for Engineers
Part 1
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Economics for Engineers – Part I Mohammad Tawfik
Thinking like an Economist
Based on:
Thinking like an Economist: A Guide to Rational Decision
Making
By: Randall Bartlett, Ph.D.
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Economics for Engineers – Part I Mohammad Tawfik
6 Principles of the Economist's Toolkit
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Economics for Engineers – Part I Mohammad Tawfik
Principle Number 1:
People respond to incentives.
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Economics for Engineers – Part I Mohammad Tawfik
We need to anticipate the incentives we are
creating when introducing policies!
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Economics for Engineers – Part I Mohammad Tawfik
Principle number 2:
There is no such thing as a free lunch
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Economics for Engineers – Part I Mohammad Tawfik
Opportunity Cost
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Economics for Engineers – Part I Mohammad Tawfik
Resources are scarce!
Time, money, food
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Economics for Engineers – Part I Mohammad Tawfik
Principle number 3: No thing is just one thing;
There are always at least 2 sides to every
interaction.
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Economics for Engineers – Part I Mohammad Tawfik
Every buy is a sell
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Economics for Engineers – Part I Mohammad Tawfik
If we do not spend money, no one
will earn money!
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Economics for Engineers – Part I Mohammad Tawfik
Principle number 4: The law of unanticipated
influences
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Economics for Engineers – Part I Mohammad Tawfik
Butterfly effect!
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Economics for Engineers – Part I Mohammad Tawfik
Medical cost will increase when disturbance
happens in Iran!
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Economics for Engineers – Part I Mohammad Tawfik
Bombing in Iraq results in
a drop of tourism in Egypt!
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Economics for Engineers – Part I Mohammad Tawfik
Principle Number 4:
The Law of unanticipated consequences
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Economics for Engineers – Part I Mohammad Tawfik
Accidents because of red-light cameras!
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Economics for Engineers – Part I Mohammad Tawfik
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Economics for Engineers – Part I Mohammad Tawfik
Principle number 6:
No one is, and no one ever can be, in complete
control.
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Economics for Engineers – Part I Mohammad Tawfik
Principle number 6:
No one is, and no one ever can be, in complete
control.
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Economics for Engineers – Part I Mohammad Tawfik
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Economics for Engineers – Part I Mohammad Tawfik
3 Core Concepts
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Economics for Engineers – Part I Mohammad Tawfik
I - Rationality
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Economics for Engineers – Part I Mohammad Tawfik
I - Rationality
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Economics for Engineers – Part I Mohammad Tawfik
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Economics for Engineers – Part I Mohammad Tawfik
Personal preferences.
How we decide not to what we decide!
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Economics for Engineers – Part I Mohammad Tawfik
Your preferences appear in your choices!
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Economics for Engineers – Part I Mohammad Tawfik
II – Marginal Analysis
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Economics for Engineers – Part I Mohammad Tawfik
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Economics for Engineers – Part I Mohammad Tawfik
If we woke up tomorrow and gas prices had
doubled, how would that affect automobile usage?
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Economics for Engineers – Part I Mohammad Tawfik
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Economics for Engineers – Part I Mohammad Tawfik
Increasing
spending in
crime prevention
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Economics for Engineers – Part I Mohammad Tawfik
Water-Diamond Paradigm
Value in use vs. Value in Exchange
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Economics for Engineers – Part I Mohammad Tawfik
III - Optimization
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Economics for Engineers – Part I Mohammad Tawfik
Equi-marginal Analysis
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Economics for Engineers – Part I Mohammad Tawfik
Imagine yourself on a new TV reality
show.
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Economics for Engineers – Part I Mohammad Tawfik
The Price of Safety!
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Economics for Engineers – Part I Mohammad Tawfik
How to achieve Economic Efficiency?
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Economics for Engineers – Part I Mohammad Tawfik
Economists define efficiency as people being
made better off.
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Economics for Engineers – Part I Mohammad Tawfik
They figured they could not find a strong, objective
measure of social welfare, so they settled for a
very weak one instead
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Economics for Engineers – Part I Mohammad Tawfik
Pareto Optimum
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Economics for Engineers – Part I Mohammad Tawfik
If we take a number of people, and something
makes any one of them better off by their own
judgment without making anyone else worse off,
that is an unambiguous social improvement.
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Economics for Engineers – Part I Mohammad Tawfik
Incentives and Tragedy of the
Commons
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Economics for Engineers – Part I Mohammad Tawfik
Tradable Quotas
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Economics for Engineers – Part I Mohammad Tawfik
Future Values – Discount Rate
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Economics for Engineers – Part I Mohammad Tawfik
Behavioral Economics
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Economics for Engineers – Part I Mohammad Tawfik
The Ultimatum Game
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Economics for Engineers – Part I Mohammad Tawfik
Anchor Points
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Economics for Engineers – Part I Mohammad Tawfik
Endowment Effect
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Economics for Engineers – Part I Mohammad Tawfik
Status Quo Effect